Increasing cases of digital fraud threaten Nigeria’s financial inclusion goals

In recent years, Nigeria has made significant progress in promoting financial inclusion, with the aim of integrating millions of unbanked and underbanked citizens into the formal financial system.

However, an increase in fraud cases threatens to derail this progress, making individuals and small businesses increasingly skeptical of digital financial services.

According to recent data from the Financial Institutions Training Center (FITC), there has been a spike in the number of fraud cases reported by banks and the amounts involved.

Specific to the third quarter of 2024, fraud cases reported by Nigerian banks increased by 65%, from 11,532 in the second quarter to 19,007 in the third quarter.

Similarly, there was also a spike in the amount involved in fraud when the attackers attempted to steal N115.9 billion in the third quarter, an increase of 105% compared to N56.6 billion in the second quarter.

In nine months, over N53 billion has been lost to fraud

Based on the FITC fraud and counterfeiting reports for the first, second and third quarters of the year, Nigerian banks and their customers lost an estimated N53.4 billion to fraud in the first nine months of the year.

While reports show a minimum loss of N468.4 million in the first quarter, the fraudsters made a big profit in the second quarter by wiping out N42.8 billion in the second quarter, while in the third quarter they made another N10 surpassed .1 billion.
This shows a significant increase in losses compared to the total of N9.4 billion lost to fraudulent activities last year.
The reports further confirm the escalation of fraud across all platforms, with the rise of digital transactions further increasing the risks.

Victims of financial fraud talk about their ordeal

For Lagos based trader Amaka Eze, the promise of convenience turned into a nightmare. She lost N450,000 in July this year after hackers gained access to her mobile wallet through a phishing scheme.

“I had just started relying on digital payments to avoid carrying around cash. Now I don’t know if I’ll ever use my phone for transactions again,she complained

In the same way, Daniel Ajayi, a small-scale farmer in Ibadansaw his savings wiped out overnight.

“It took me three years to save that N1.5 million and just like that, it was gone.said Ajayi, who could not understand how his money was wiped out from his account despite keeping his debit card and PIN safe.

Stories like theirs have become all too common, eroding trust in digital financial platforms.

Discouraging financial inclusion

The ripple effect of these fraud incidents is profound. Many Nigerians are now hesitant to open bank accounts or adopt fintech solutions for fear that they could lose their hard-earned money.

For a country that wants to achieve 95% financial inclusion by the end of 2024, this skepticism is a major hurdle. Women and rural residents, who are a crucial demographic for inclusion, are particularly wary given their limited exposure to financial literacy programs and fraud protection mechanisms.
According to the 2023 Access to Finance (A2F) survey report by Enhancing Financial Innovation and Access (EFInA), despite steady progress since the survey began in 2008, the pace of progress remains worrying, with 59 million Nigerians excluded from formal financial services in 2020, particularly impacting rural communities and women.
The report further notes that the ownership and use of banking services in Nigeria is still heavily skewed towards the top of the wealth distribution; in the more developed neighborhoods and urban areas; but also towards men, people with better educational attainment and middle-aged people, further contributing to inequality between and within these categories.

What the CBN does

As part of measures to stem the tide of rising fraud in the financial system, the CBN recently directed all financial institutions in the country to establish fraud desks to protect against electronic fraud.

The aim of these counters is to respond quickly to fraud reports and to reduce the number of successful frauds involving electronic payments.

In addition, the summit also established the National Economic and Financial Crimes Forum (NEFF), a collaborative group led by the CBN that aims to reduce fraud in the Nigerian financial system.

The functions of the NEFF include:

Take proactive measures against fraud
Implement strategies to reduce fraudulent transactions
Report fraud as soon as it is discovered
Providing detailed data on fraud incidents

The role of bank customers

Despite regulatory efforts, the issue of fraud still remains a major challenge in the financial sector and a threat to financial inclusion.

However, a cybersecurity expert and Chief Information Security Officer (CISO) of Unity Bank, Mr. Zechariah Akinpelu, noted that part of the losses due to fraud are caused by the carelessness of bank customers.

According to him, the false sense of security that many people have regarding the protection of their ATMs, especially if they rely solely on PIN security, could lead to major financial losses.
While he noted that many cardholders believe that if their card is lost or stolen, the attached PIN will prevent unauthorized transactions, he pointed out the danger of “card-not-present” (CNP) transactions, which do not require a PIN to complete a purchase on certain merchant websites.

“If someone gets hold of your card details, he or she can make transactions on your behalf without needing your PIN,” he warned.

Highlighting global risks, Akinpelu noted that while Nigerian banks have implemented robust security measures such as PIN and chip technology, the global nature of online shopping exposes Nigerians to vulnerabilities in other regions.

“In Nigeria, rest assured that most merchant sites require a PIN for transactions. However, we live in a global village. I can order a phone anywhere and have it delivered to me within a few days,” he said.

Unity Bank’s CISO expressed concern that many Nigerian cardholders care less about the numbers on their cards and only about their PIN.

“The way people carelessly handle their cards these days is worrying. People think they are protected because they protect their card with a PIN code, even if the card is lost.” he declared.

Ways forward

Apart from the need for greater awareness among banking customers to be security-conscious with their ATMs and other banking credentials, financial sector stakeholders say financial institutions still have a lot to do to restore people’s trust in them.

While expressing concern that the increasing number of frauds in banks is eroding confidence in the financial sector, the Managing Director and CEO of the FITC, Dr. Chizor Malize, proposed the use of artificial intelligence by all financial institutions to tackle the problem.

According to her, emerging technologies such as AI would play a crucial role in combating the rise of cyber threats and digital risks, which have been exacerbated by technological advancements.

“There is an urgent need to leverage AI to reduce risks and strengthen the stability of the financial system,” she said.

Mrs. Favor Femi-Oyewole, Group Chief Information Security Officer of Access Bank, also emphasized the need for embedded security in the financial sector due to consumer exposure to various APIs and multiple digital footprints. She called for widespread implementation of machine learning to address growing financial challenges and prevent potential risks.

Stressing the need for bank collaboration to tackle the menace, Femi-Oyewole said:

“We can compete on models, we can compete on strategies, on objectives and all that. When it comes to cybersecurity, we all face the same common enemy. So that means we have to work together.”

Similarly, the MD/CEO of Pattison Consulting Limited, Mr. Pattison Boleigha, advocated wider adoption of AI tools and software to combat financial fraud.

According to him, the issues of governance and regulatory oversight are also key to ensuring that all financial institutions are doing the right things when it comes to security.
To this end, he urged regulators to be trained in these technologies, while calling for greater consumer awareness and cooperation between consumers, operators and regulators to effectively combat fraud.

This report was produced under the DPI Africa Journalism Fellowship Program of the Media Foundation for West Africa and Co-Develop.