Fraud continues to pose a grave challenge to Nigeria’s economy, exerting a substantial toll on various sectors. Nigerian banks lost ₦472 million to POS and mobile fraud in the first quarter of 2023, according to data from the Nigeria Deposit Insurance Corporation (NDIC). This represents a 14% decrease from the previous quarter, but it is still a significant amount of money. The number of POS and mobile fraud cases increased by 19.51% in the first quarter of 2023 and this is likely due to the growing popularity of these payment methods in Nigeria. The report also found that the amount of money involved in POS and mobile fraud cases increased by 86.73% in the first quarter of 2023. This is a concerning trend, as it suggests that fraudsters are becoming more sophisticated in their methods.
As fraud proliferates, Nigeria’s reputation as a secure business destination and public trust in the banking system suffers.
This article delves into a comprehensive report on fraud and forgeries in Nigerian banks, compiled by Financial Institutions Training Centre (FITC), established in 1981 to provide innovative knowledge solutions and capacity-building programs that develop and strengthen resources for the Nigerian financial services sector through Advisory services, Learning, Research and Advocacy. The report sheds light on different fraud channels and their economic impact.
Fraud types and economic implications
Various forms of fraud plague Nigeria, with bank fraud, investment fraud, and government fraud being the most prevalent.
Bank fraud involves the unauthorized utilization of bank accounts or credit cards, while investment fraud deceives investors through false representations of investment opportunities. Government fraud, on the other hand, entails the misuse of government resources and funds. These fraudulent activities result in financial losses for businesses and individuals, tarnishing the country’s economic standing and eroding public confidence in financial institutions.
Insights from the FITC report
The FITC report highlights significant developments in fraud cases and their financial ramifications during the first quarter of 2023. Notably, the report reveals a decrease of 14.07% in reported fraud cases compared to the previous quarter (Q4 2022), totaling 12,533 cases. The primary channels through which fraud occurred were mobile, computer/web, and point of sale (POS) transactions, which registered the highest number of occurrences.
During Q1 2023, the amount involved in fraud cases plummeted by 79.44%, dropping from ₦12.58 billion to ₦2.59 billion. Similarly, the losses incurred due to fraudulent activities reduced from ₦3.18 billion to ₦472 million, marking an 85.13% decrease.
Shifts in external and insider involvement
Typically, fraudulent activities involve the collaboration of external players and insiders. However, the Q1 2023 report indicates a decline of 8.08% in external involvement, with the number of cases falling from 13,436 to 12,351. Intriguingly, staff involvement experienced an alarming increase of 89.47%, as the number of cases rose from 32 to 72. Additionally, the report identifies 124 unspecified cases and six instances of collusion to defraud.
Mobile fraud tops at ₦1.1 billion
A closer examination of fraud categories unveils the monetary scale of each type. Mobile fraud accounted for the highest value at ₦1.1 billion, followed by computer/web fraud at ₦646 million. Fraudulent withdrawals accounted for ₦139 million.
The report also highlights the corresponding financial losses for each category, with mobile fraud leading at ₦161 million, computer/web fraud at ₦130 million (27.69%), and fraudulent withdrawals causing a loss of ₦116 million (24.72%).
Channels, Instruments, and Personalities of Fraud
According to the report, fraudsters employ various channels, including ATMs, web and mobile banking platforms, bank branches, and POS terminals. Cash and card transactions were the most prevalent instruments used for fraud, while the utilization of cheque remained minimal. Notably, fraud cases decreased across all channels, except for an increase in POS fraud.
The report indicates a decrease of 38.61% in ATM channel fraud cases, dropping from 404 cases in Q4 2022 to 248 cases in Q1 2023. Similarly, mobile and web channels experienced a decline of 9.7% and 17.81%, respectively. In contrast, POS fraud witnessed an increase of 19.51%, with the number of cases rising to 1,985.
While the amount involved in mobile fraud increased from ₦938 million to ₦1.1 billion, POS fraud amount rose from ₦241 million to ₦450 million, signifying an 86.73% increase. Conversely, the report indicated a decrease in the amount of money involved in computer/web, ATM, and bank branch fraud. Meanwhile, computer/web fraud decreased by 96.90%, from ₦10.6 billion to ₦646 million, while the amount involved in ATM fraud dropped by 54.64%, falling from ₦52.3 million to ₦23.7 million.
Notable shifts in fraud loss channels
Q1 2023 witnessed an increase in losses through ATM and bank branch channels. ATM channel frauds surged from ₦949 million to ₦1.6 billion, while bank branch channel losses rose from ₦119.95 million to ₦172.56 million.
Conversely, losses incurred through web channels decreased by 95.38%, whereas mobile and POS frauds witnessed losses that decreased by 15.76% and 43.86%, respectively.
The decline in cash, card, and cheque fraud cases
The report reveals a 7.28% decrease in cash fraud cases, dropping from 151 cases to 140 cases. Card fraud cases also experienced a 15.12% reduction, from 11,566 cases to 9,817 cases. Additionally, cheque fraud cases witnessed a significant decline of 60%, falling from 29 cases to 9 cases.
Corresponding to the decrease in fraud cases, the report highlights a 20.96% decrease in cash fraud amounts and an 82.22% decline in cheque fraud amounts. Card fraud amount also dropped by 82.92%.
Analysis of fraud instruments further indicates a 90.21% decrease in losses incurred through card fraud and a 35% increase in cash fraud losses.
Bank Employee involvement
According to the report, 15 employees lost their jobs due to their involvement in fraudulent activities, marking a 25% decrease compared to Q4 2022. Moreover, while the total number of fraud cases decreased by 14.07% in Q1 2023, the report reveals a significant increase of 89.47% in staff involvement and an 8.08% decrease in external involvement.
What’s the way out?
The Q1 2023 report showcases a reduction of 14.07% in reported fraud cases compared to the previous quarter, reflecting positive strides in curbing fraudulent activities in Nigeria.
However, the surge in insider involvement raises concerns and underscores the need for robust measures to ensure the integrity of the country's banking system.
Stakeholders must collaborate to combat fraud and safeguard Nigeria's economy from further harm. Recently, some of Nigeria’s largest fintech startups began working on a joint strategy to tackle fraudulent transactions within their network, starting with plans for a shared list of suspected criminals.
Per Semafor Africa, the registry, tagged Project Radar will allow companies access to relevant data, including banking and government identity of individuals and groups that have attempted or made fraudulent transactions.
“With this initiative, there will be a pool of data that anyone can leverage to trace fraudulent activities. Although it is quite difficult, it is important for fintech operators to share such data amongst themselves,” Yele Oyekola, CEO and co-founder of Duplo told Bendada.com. “Most importantly, payment companies need to invest in providing secure platforms and compliance.”
However, other experts argue that the take-off of this kind of initiative will be difficult due to previous failed initiatives. “What they are trying to do is the simplest thing from a technical point of view but it is never going to succeed. When it is time to contribute data you will start hearing excuses about privacy policies,” Adedeji Olowe, founder and CEO of Lendsqr told Semafor Africa.
