By Babajide Komolafe
Experts have raised alarm over the threat of major fraud crisis in banks following N6.1 trillion losses to electronic fraud in Nigeria.

This came with the rising trend in electronic payment transactions which rose to N97 trillion in 2017 buoyed by various policy measures to use digital channels to facilitate financial inclusion in the country.

Speaking at the just concluded 2018 annual workshop organised by the Nigeria Deposit Insurance Corporation (NDIC) for Business Editors and Finance Correspondents in Benin, Edo State, financial experts and officials of the Central Bank of Nigeria (CBN) and the NDIC, noted that while there is need to leverage on electronic payment channels to attract more people into the financial system, there is also need for increased security, collaboration and consumer education to protect  bank customers from the risk of losing their money to  electronic frauds.

In his keynote address, Managing Director/Chief Executive, NDIC, Alhaji Umaru Ibrahim, noted that the proliferation of financial technology  and evolution of digital currency have become a major concern with respect to consumer protection.

He said: “Some of the emerging issues in the global financial services industry, Nigeria inclusive, included the proliferation of financial technology, FinTech, financial consumer protection, financial inclusion, digital and mobile banking and the evolution of digital currencies. “Customer protection and financial inclusion as impacted by Fintech is now a global issue. Another issue worthy of mention is cybercrime resulting from the rapidly evolving complexities in technology.”

Financial inclusion and risks of  digital financial services

While speaking on the efforts to achieve the nation’s financial inclusion goal, Head of Financial Inclusion Secretariat, Central Bank of Nigeria (CBN), Mrs Temitope Akin-Ajayi, noted that the adoption of electronic payment especially mobile money and agent banking is imperative to  addressing one of the barriers to financial inclusion, which is, long distance to access points to financial services.

Represented by Mr. Joseph Attah, an official in the Financial Inclusion Secretariat, she noted that this led to the introduction of the various policy measures to encourage and enhance introduction and adoption of electronic payments adding that the revised strategy which serves as a roadmap for implementation till 2020 emphasises digital payment and creation of conducive environment for expansion of digital financial services, as well as rapid growth of agent networks nationwide.

Director, Consumer Protection Department, CBN, S.K Salam-Alada however warned  that electronic fraud poses a major threat to the  attainment of the financial inclusion target of 20 percent inclusion by 2020.

Represented by Ibrahim Hassan, Assistant Director, Consumer Protection Department of CBN, he  said  while the increased adoption of digital financial services have boosted the volume and value of electronic transactions in Nigeria, it has also increased vulnerability to electronic fraud attacks, with losses to electronic fraud projected to hit N6.1 trillion by 2021 in Nigeria.

He disclosed that though Nigeria recorded decline in losses to electronic fraud in 2017, the country however recorded increase in number of electronic fraud incidents.

He said: “The vulnerability of the electronic payment infrastructure is a global issue affecting consumers, banks and national security and this phenomenon has been catapulted to the forefront in Nigeria with the adoption of real time payment (RTP), which has resulted into a significant increase in the year-on-year volume and value of transactions across all payment channels in Nigeria with higher volumes and values of transactions recorded in successive years from 2014 to 2017.

“1.4 billion transactions with a value of N97.4 trillion were processed in 2017 as against 869 million transactions with a value of N69.1trillion recorded in 2016. An increase of 59.7 percent and 40.9 percent  were recorded respectively in the volume and value of transactions in 2017”,

He added that, “Corollary to the increased volume of transactions recorded in 2017,  25,043 cases of fraud were reported by  deposit money banks (DMBs) in 2017 compared to 19,531 cases in 2016 representing a 28 percent  increase in reported fraud cases in 2017.  Even though there was a 24 percent  reduction in actual fraud loss value in 2017 compared to 2016 figures, Actual fraud loss value amounted to N1.63 billion in 2017, with electronic fraud accounting for 83 percent of the fraud loss value.”

“The volume of and value of e-transactions is projected to continue to increase nationally and globally as result of  broader ecosystem scope, the evolution of channels, adaptability to disruptive innovations and modes of payment, increased inclusion and evolving technologies. e-fraud loses projected to reach N6.1 trillion by 2021 in Nigeria”, he said.

However,  Chioma Mbanisi, Head, Digital Services, Stanbic IBTC, noted that while  digital financial services has become a necessity given the inherent benefits. It is fraught with risks to cybercrimes and frauds.   “Digitization is fraught with risks which banks must manage by protecting themselves from cyber-attacks, combating financial fraud and all forms of money laundering” she said.

Speaking on the threat of cyber crime, Alhaji Yahaya Umir, Director Insurance and Surveillance, NDIC, said: “With the advent of ICT, Cyber –crime has come to stay since the modern business world relies on technology to operate. It is difficult to successfully run or operate major businesses, financial, medical, academic, transport, agriculture,  manufacturing, mining,  without the use of computers along with related software.”

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He added that an ideal economy is virtually not possible, because as technology increases so also crimes.   “Cyber criminals are always in the such to overcome firewalls and securities in technologically driven environment with the social or political aim of obtaining information and data or funds as well as destruction of the efficacy of installed servers and related computer applications.”

On his part, Kabir Katata, Deputy Director, Research, Policy and International Relations Department, NDIC, cited the risk posed by rising wave of digital currencies across the world. He said: “Digital Currencies (DCs), though a new phenomenon, is gaining popularity across the globe and are associated with a lot of risks.  That is why regulatory/supervisory authorities in many countries are seriously concerned about DCs. Some of the associated risks have far reaching implications for deposit insurance, banking and legal practice. At present, digital currency does not pose global financial stability risks. But, they raise other significant concerns, including consumer and investor protection, market integrity and money laundering and terrorism financing, among others.”

Measures to combat the risks

On the way forward, Salam-Alada said that the financial industry must deploy cutting edge knowledge and competence against fraud especially in preventive measure and investment in technology solutions. He also called for regulatory intervention and collaboration as well as effective communication of anti-fraud measures.

He said: “Given that most fraud is carried out by employees, the first stage of fraud prevention is a robust staff recruitment screening process. The development of a definitive and well communicated fraud policy to deter mistakes that can lead to employees unwittingly aiding in fraud; A well-designed, implemented and communicated fraud prevention controls and strategies; Proactive testing of an organization’s automation and control systems and the information they hold by way of suspicious transaction analysis; These measures can identify and nip fraud at its early stages before it becomes material in size, preventing large losses at a later stage.

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On his part, Umir called for continuous capacity building and public awareness, as well as cooperation between actors and players in the financial industry. He also called for establishment of institutional framework for coordinating cyber security issue and efforts., stressing that the enforcement of the cyber crime laws and the office of the National Security Adviser (ONSA) should play a more active and leading role in that campaign.

President of  Bank Customers Association of Nigeria (BCAN),  Dr. Uju Ogubunka, emphasised the need for education about consumer rights.

He noted that while the CBN has developed a document on consumer rights, there is need for banks to recognise and uphold these rights, which include full disclosure, good service and privacy.

“If put my money in the bank on trust that anytime I go to ask for my money, I will have it. When I give you information, I expect that it will be protected without expecting that fifth columnists will have access to it” he said.

He urged banks to educate customers about current developments, including issues like digital currencies.

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