James Emejo and Nume Ekeghe write on the need to adopt measures to address online fraud and encourage financial inclusion

In August 2017, a Nigerian bank was defrauded by one of its clients. The client, one of the petroleum marketing and distribution companies, which also runs a hospitality business, applied for three point of sale (PoS) terminals to facilitate payments by customers at its fuel stations. The bank availed the company two terminals.

Later in the year, the company requested that the PoS terminals issued to them be re-configured for ‘online card-less entries’ (Card-Not-Present – CNP), which the bank granted but only one of the terminals was re-configured.

The ‘online card-less entries’ (Card-Not-Present – CNP) service is normally provided to hospitality businesses, where customers can call to make reservations while providing their card details.

The company claimed most of its clients are foreigners who call to make reservations.
However, soon after granting the service, a high volume of ‘Card-Not-Present’ transaction totalling N908,271,096, was said to have occurred through the PoS device, using foreign-issued credit cards. Upon suspicion of fraud by the bank, the PoS was deactivated. The transactions were later flagged as fraudulent and chargebacks were filed by the card issuers, but unfortunately, the funds had been transferred to various accounts in other banks.

Subsequently, the bank requested the client to provide documentary evidence of service delivery to the customers who purportedly used the cards, but the client could not produce such evidence.
This above story was narrated by the Director, Insurance & Surveillance Department at the Nigeria Deposit Insurance Corporation (NDIC), Mr M. Y. Umar, during a recent workshop for financial journalists and select civil society organisations organised by the corporation in Benin, Edo State recently.

The story highlighted one of the biggest challenges in the country’s financial system today -fraud.
Based on data from the Central Bank of Nigeria, while the country continues to experience growth across payment channels, commercial banks in the country lost a total of N12.06 billion to fraud and forgeries in the first six months of 2018.

The CBN disclosed this in its ‘Draft 2018 Half Year Economic Report’ that was posted on its website recently.
According to the report, there were 20,768 reported cases of fraud and forgery (attempted and successful), valued at N19.77 billion in the review period, compared with 16,762 cases, involving N5.52 billion and US$ 0.12 million in the corresponding period of 2017.

“The actual loss by banks to fraud and forgery, however, amounted to N12.06 billion, compared with the N0.78 billion and US$0.03 million, suffered in the first half of 2017.

“The reported fraud and forgery incidences were perpetrated by both bank staff and non-bank culprits. The cases involved armed robbery attacks, fraudulent ATM withdrawals, draft defalcation, illegal funds transfer, pilfering of cash, stealing, suppression and conversion of customers’ deposits,” it had explained.

Reducing Financial Fraud
Umar, believes that with the advent of ICT, online crime has come to stay.
“It is difficult to successfully run/operate major businesses, financial, medical, academic, transport, agriculture, manufacturing, mining, etc without the use of computers along with related software,” he said, noting that cyber-criminals are also always trying to improve their nefarious skills.

According to a Director, Consumer Protection, CBN, Mr S.K. Salam-Alade who was represented by Mr. Josephe Attah, the high incidence of fraud is usually as a result of weak security infrastructure in financial institutions and insufficient internal controls.
Furthermore, he attributed the development to the naivety of the average bank customer.

And, apart from the huge financial loss to consumers, financial institutions and the economy, online fraud also damages the financial system’s reputation, increases the risk of participating in its offerings. This, “threatens the attainment of the financial inclusion target of 20 per cent inclusion by 2020,” the CBN Director said. To combat the problem, he advised financial institutions to invest in the latest security technology solutions and effective communication of anti-fraud measures.

For Umar, continuous capacity building for end users, cooperation between actors/players, establishment of institutional framework for coordinating cyber security issue/efforts and review of related bills to further strengthen cyber security are essential.

In addition, he said continuous public awareness and campaigns to educate the general public and the enforcement of the cybercrime laws should help to reduce online fraud.
He also called on the office of the National Security Adviser (ONSA) to play a more active and leading role in the fight against the economy’s bottom-line.

Also, the Head, Financial Inclusion Secretariat, at CBN, Mrs Temitope Akin-Fadeyi, who also spoke at the workshop, urged media practitioners to collaborate with financial regulators in the country to educate depositors on financial literacy and inclusion.

Akin-Fadeyi, who was represented by Mr Joseph Attah, a member of the Financial Inclusion Secretariat, CBN, said, educating depositors remains a collective responsibility of all.

According to her, there is a growing perception by Nigerians that it is the sole responsibility of the regulators to educate depositors on financial inclusion. However, she said it was important for media practitioners to fully understand the concept of financial inclusion.
Akin-Fadeyi, therefore, urged journalists to partner with the regulators to properly educate Nigerians to ensure increased participation of financial inclusion in the country.

Improving Financial Inclusion
The incentives to fight fraud in Nigeria are numerous. But a very important one is the campaign to improve the number of people who engage actively with the country’s financial system. The more fraud that exists in the system, the less people will be convinced to join the financial inclusion train.
The National Financial Inclusion Strategy was launched in 2012 with the overall target of increasing adult financial inclusion to 80 per cent in 2020.

As at 2016, progress has been made with the percentage of adult Nigerians having access to formal financial services increasing from 36.3 per cent in 2010 to 48.6 per cent in 2016, while the percentage of adult Nigerians having access to bank accounts increased from 30 per cent in 2010, to 38.3 per cent in 2016.

According to the CBN official who gave a presentation on financial inclusion, the prospects for reaching 80 per cent inclusion is high with the presence of a formidable governance structure, a shared agent network expansion project with target of 500,000 agents by end 2019, target setting for states and financial service providers, a revised capital base for microfinance banks, the introduction of Payment Service Banks and the commitment of stakeholders and opportunities for partnerships.

Sustaining Digital Banking
Meanwhile, the Head, Digital Service Management, Stanbic IBTC Bank, Mrs Chioma Mbanisi, reiterated the importance of digital banking in the country.

Mbanisi said the importance of digital banking cannot be overemphasised and should be further encouraged among Nigerians.
“The digital option is indeed radically better than the physical one and should be utilised, especially in this era,” she noted.
“Ideally, it allows instant access, extreme convenience, trial and tracking options, vast reach, offered to people at lower cost and automatic record keeping.”

However, Mbanisi, pointed out, although the means of banking transactions are advancing from an orthodox way to a more digitised way, there are still some challenges.

“To the traditional customers, mature citizens or bank customers that are “technologically challenged”, digital can be a nightmare because they feel that they are at the mercy of a bewildering maze of computer servers, gadgets, bots, jargons, channels,” she said.

“Imagine engaging a bank’s contact centre and talking to a chatbot that does not understand why you are worked up and is consistent in giving you programmed responses?”
Mbanisi, also said the use of digital banking had led to disloyalty by banks customers, cybercrimes, regulatory complaints, lack of trust, lack of technology and the challenge in the use of technology.

Besides, she said that digital banking could pose challenges to employment level in the country.
This, Mbanisi explained could cause bank staff to lose their jobs as a result of the advent of automated machines replacing human beings in the future.

Still, the benefits of digital banking, she stressed, reduces cost of transactions and makes banking convenient. She advised banks needed to keep pushing the boundaries of innovation if they are to capture more Nigerians into the banking industry.
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