Many people who fall victim to cyber scams and end up losing their money or their valuables, do not report the fraud on the first day it happened, according to a new report by PalmPay, a Nigerian-based fintech company.
“From our observations, customers do not take prompt action. Only 33 percent report the same day or take the necessary right action on the same day,” the company said in a statement.
According to PalmPay, failing to report fraudulent transactions early enough gives criminals the opportunity to move the stolen funds to ‘safe’ places.
Digital financial fraud has been on the rise recently as the digital payment market experiences exponential growth. A report by KPMG noted that in 2022, the global digital payment market size was valued at $81.03 billion, with global digital payments valued at over $8 trillion, and the market size is only expected to continue, at an annual growth rate of around 20 percent in the next seven years.
“Behind the scenes, bad actors or criminals are keeping up with the pace and advances in fintech, often actively developing new strategies to exploit digital payment products and services to hide the origins of their criminal activities and take advantage of vulnerabilities and weaknesses in organisations’ compliance frameworks,” the KPMG report noted.
The rise of digital payments has increased the potential for fraud, money laundering, terrorist financing, and sanctions risks. In view of this, fintech companies are constantly focused on balancing between the need to maintain user satisfaction and prioritising the identification and management of increased financial crime risks to meet the demands of evolving regulatory focus.
In Nigeria, the FITC which counts the Nigerian Bankers Committee as a member, reported that banks lost N6.03 billion in the first half of 2023. The analysis noted that mobile fraud, computer and web fraud, and point-of-sale fraud incidents caused Nigerian banks to register 24,232 fraud instances in the first half of 2023.
Fraud incidents often happen due to lapses on the customers’ part as a result of poor digital literacy. This is not to say that banks and their staff do not have a role to play in protecting customers from cyber fraud. However, the PalmPay report notes that customers must be extra vigilant as criminals can easily spot and exploit different vulnerabilities once they let their guard down.
“We have scenarios of fraudsters calling a customer that they won XYZ while cajoling them to disclose sensitive information. This fraudulent act rides on a lack of security awareness and sometimes the greed of the victim. That is what the particular scheme thrives on,” said Kelvin Olumese, Senior Marketing Manager, PalmPay Nigeria.
PalmPay has three approaches to securing users’ transactions. The first is through its device security features which essentially require that users provide OTP and PIN when accessing their app from another device. It allows users to set a time limit for inactivity before entering a PIN. It also requires a fingerprint or facial recognition login. In cases of telecom fraud where OTP/PIN might have been compromised, the system can use facial recognition to confirm the user’s identity.
The second approach is the risk management strategy which is aimed at helping users avoid financial losses, reduce the disturbance to users, and balance security and user experience. The strategy makes use of algorithms, big data, and computing power as the framework.
The final approach is the PalmPay closed-loop risk management. This deals in more detail with the various stages of fraud detection and provides mitigation of the risk.
The strategies notwithstanding, PalmPay says effective fraud or erroneous transfer investigation and resolution begins when the user reports to their bank that a fraud has taken place.
“Only your bank can use your transfer details to contact other banks like PalmPay for erroneous transfer investigations,” the bank noted.
PalmPay also has the ‘I million Shield’ feature to secure users’ funds on the platform. The feature which is available on the PalmPay app for tier 2 and 3 users, provides an additional enhanced coverage of up to N1 million annually and up to N50,000 on each transaction for any loss due to unauthorised transactions. An unauthorised transaction is any payment or activity that the user did not authorise.
To receive compensation, PalmPay has to review and confirm the authenticity of the user’s application.
“The compensation amount will be automatically transferred to your PalmPay balance account. Unlock the power of the 1 million Shield by completing your BVN verification and facial recognition on PalmPay, ensuring your eligibility for refunds on unauthorised transactions from your PalmPay app,” said Olumese.