Since 2012 when the Central Bank of Nigeria (CBN) began a sustained push to deepen the digital banking policy and improve financial inclusion in the country, its biggest headache has been keeping the banking system safe from scammers feeding fat on bank deposits.
This is because, while some experts have applauded the Federal Government’s effort at getting more Nigerians financially included, concerns about the policy’s unintended risks, especially with the rising number of naive depositors falling prey to cyber criminals in the electronic banking ecosystem, remain a big issue.
But even with some progress being made with financial inclusion, many Nigerians re rattled by the incidence of unauthorised access to bank customers’ deposits and financial information, giving them sleepless nights.
Several bank customers already stung by online scams are becoming lethargic to formal banking, with many vowing never to return to banking halls and the inherent fraud threats now eroding the little gains recorded with financial inclusion.
It is estimated that the Nigerian banking industry has lost more than N20 billion between 2018 and 2021 to fraudsters using various electronic devices. For instance, a recent report by the Nigeria Inter-Bank Settlement System (NIBSS) revealed that the number of fraud attempts in the digital banking space between January and September 2020 grew by 186 per cent, year-on-year (YOY) to 46,126 cases, driven mainly by increased attempts via mobile (330 per cent YOY), online (173 per cent YOY) and point-of-sale (POS) machines (215 per cent YOY).
It further highlighted that total amount lost to online scammers during the period was N5.2 billion, with a 93 per cent success rate.
In its broader analysis, the high rate of electronic banking fraud in the last one year springs from the COVID-19 pandemic that forced the world to lock down, thus reducing physical contact, as many migrated to virtual economic services in the online space.
In Nigeria, the pandemic forced millions of bank customers to shift to digital space, having substantially disabled physical banking operations.
The NIBSS report further noted that 56 per cent of all reported fraud attempts were carried out using “social engineering” techniques, which entail the psychological manipulation of people to gain confidential information on their accounts. Common instances of this criminal initiative in Nigeria’s case include receiving emails and phone calls from fraudsters posing as bank staff and tricking depositors to reveal their bank details through which they are scammed.
From the report, bank customers who did not set up the two-factor authentication systems were the next big target at 19 per cent.
Although many could infer that the N5.2 billion lost to online banking fraud between January and September 2020 is relatively small, as it represents just 1 per cent of total nine-month net profit for commercial banks and 0.03 per cent of customer deposits in 2020, the trauma lies in the cyber security risk it poses to banks as more people adopt their digital banking platforms and the long-term consequences for earnings.
With regard to growing adoption of e-payment channels, in 2020, the banking industry witnessed a 303 per cent YOY expansion in the volume of transfers using mobile phones, a 50 per cent YOY growth in POS transactions and 77 per cent increase in the volume of online transactions done through the NIBSS instant payment platform.
According to Tellimer, a UK-based economic research firm for emerging markets, “Excluding the impact of reduced e-banking charges by the CBN in 2020, these growing metrics have been positive for most of the banks we cover. Among those banks that provided disclosures on their e-banking operations in first nine months of 2020, Access Bank recorded an average growth of 41 per cent in transaction volumes from its e-banking channels (USSD, ATM, mobile and Web), FBNH recorded a 29 per cent YOY growth (Mobile and USSD), while transactions grew by 82 percent yoy (mobile, Web and USSD) for FCMB.”
The firm added that, as Nigeria’s rate of financial inclusion grows and more customers embrace digital payments, the growing incidence of fraud poses a great risk to the growth numbers banks are recording as well as customers’ faith in the integrity of their digital products.
“With scammers pretending to be bank officials, the major means of carrying out fraud, banks will no doubt need to ramp up security to protect customer confidence in their digital products as well as raise awareness.
“In addition to the risk to volumes, revenues from digital channels for Nigeria banks are also at risk, if the rapid growth in fraud is not curtailed. This is particularly important for banks that are focused on boosting retail transactions and growing fee income to support earnings, as they navigate a lower yield environment that has pressured net interest margins. Among the banks that we cover, Access (44%), FBNH (39%) and UBA (33%) have the highest contribution of digital income to their fee income, while GTB and Zenith have signalled their commitment to continue growing digital income lines,” Tellimer noted.
Interestingly, the lending institutions have also been alerting their customers to ensure more caution in transactions and continue to utilise the e-payment channels available to them.
First Bank of Nigeria stated that it recorded over 275,000 new sign-ups to alternative channels covering its Firstmobile; the USSD and First-Online platforms when the lockdown started.
In a mail to its customers, it stated, “We observed that scammers are beginning to have sleepless nights over our customers’ accounts.
“They have started sending messages on purported ATM card deactivation, due to differences in date of birth.
“They even go as far as telling you to dial their fraudulent numbers to activate your card. As in, they want to defraud you and they still ask you to waste your money on them! Don’t fall for it; it’s a lie!
“Let them know that you are not a zombie, let them know smartness is in your DNA. If you get any suspicious message as such, delete it immediately.
“Rest assured, FirstBank will never ask for your personal details or ask you to call a personal number.
“Also, do not click on any online link asking for your account details such as your BVN, personal information, ATM card number, PIN or OTP.”