Cashless Banking: Fraud in Nigeria

By Nataliya Mykhalchenko

2015 was the first year where cash was used for less than half of all payments made by customers in Britain. Moreover, the use of contactless cards rose 250% in the country in that year. The UK, along with other European countries such Denmark, Norway and Sweden are leading the way towards cashless societies. The arguments being made for such a transition include simplifying the way we spend and save, improving security of transactions and eliminating the black economy. However, another major argument for the adoption of technologies in the banking sector is helping the ‘’unbanked’’ and ‘’underbanked’’ to enter the club of online banking users. This position is also prominent in emerging economies, for example in Nigeria. Yet, electronic fraud related to e-payments, online banking and card use, for example, is rising in Nigeria, the UK and elsewhere.

This blog looks at Nigeria as an example of a country that is rapidly adopting new technologies in its banking sector. It highlights both the phenomenon of rising fraud in this sector as well as the adoption of new technologies to counter this in various anti-fraud initiatives. The blog also explores the question raised in my previous blog on whether the ‘technological fix’ is a solution to the rising levels of fraud in sectors such as banking.

One of the trends that has emerged as part my research on ‘The political economy of anti-fraud measures in Africa’ (led by Jörg Wiegratz) is the increasing adoption of technology in the Nigerian banking sector both by state and commercial actors.  

One example of such initiatives is the adoption of automatic biometric identification system by 23 Nigerian banks and the Central Bank of Nigeria supplied by the German company Dermalog. Customers are given a Bank Verification Number and are identified using their fingerprints and face recognition before they open or access their account. In another similar initiative, biometric information is used to roll-out National Electronic Identity card in collaboration with the American corporation MasterCard. The card can be used as a form of payment and a travel document. According to the division president for sub-Saharan Africa at MasterCard ‘by giving every Nigerian of 16 and older an identity card with payments functionality, the government can effectively eliminate financial exclusion in Nigeria, and help citizens to improve their livelihoods’ (see BBC News, ‘The card aiming to end Nigeria’s fraud problem’).

Another example is a wider initiative ‘Cashless Nigeria’’ that was introduced by the Central Bank of Nigeria (CBN) in 2012. As part of the initiative, a levy was introduced on cash withdrawals and deposits exceeding a certain daily limit. This initiative is in line with the country’s’ Payment System Vision 2020 – aimed at enhancing financial inclusion, reducing incidents of fraud related to handling of cash and helping the country to ‘modernise’. According to CBN, ‘an efficient and modern payment system is positively correlated with economic development, and is … key … for economic growth’. Sensitisation campaigns, by companies such as Visa – the United States-based global payment technology company – are also part of the trend to encourage people to use credit and debit cards. Last year in Nigeria, this year in Senegal and Kenya, such campaigns have become regular and are spreading across the African continent. The official goal is to raise awareness of the benefits that the EMV chip cards bring to fraud prevention in banking. The economic imperative in rolling out hi-tech solutions to fraud (as well as in working with countries such as Nigeria to match the ‘near-cashless’ economies of the North) is apparent in the involvement of global players such as Visa, MasterCard and others. Present and future profits are on the line.

The growing penetration of internet access and new technologies in Nigeria, smart phones in particular acts as one of the enabling factor in growth of usage of remote banking and contactless payments. According to some estimates, mobile phone penetration has hit 94% in Nigeria, with smartphones making 30% of the figure. However, one issue stands out prominently and that is the growing level of electronic fraud, particularly in the banking sector. According to the Annual report of the Nigeria Deposit Insurance Corporation fraud on e-payment platforms of the Nigerian banking sector increased by 183%, between 2013 and 2014, while it is estimated that Nigeria loses N127 billion to cybercrime on the whole, which represents 0.08% of the country’s GDP.

The above echoes the global trend of rising levels of fraud in different sectors of the economy. As was outlined in my previous blog, a number of initiatives are being increasingly put in place across African countries, many of which rely on technology as a solution. However, a number of commentators suggested that perhaps the introduction of alternative payment systems is in fact fuelling new forms of fraud, thus, having a negative effect on addressing fraud. Moreover, there is a sense that ever more sophisticated technology (in banking and in other sectors) is needed to counteract these emerging methods of fraud, which poses a question: does the ‘technological fix’ offer a sustainable solution to the growing levels of fraud?

In the case of Nigeria and the banking sector, another interesting phenomenon emerges. There is a sense that technological advancement in the banking sector (and hence sophisticated fraud protection) is one of the prerequisites towards a more beneficial integration of the country into the global economy. Last year’s Cybercrime Act, which outlines measures for prohibiting, preventing, detecting, responding, investigating and prosecuting of cyber-related crimes, including, for the worst offences, the death penalty ‘for an offence committed against a system or network that has been designated critical [to the] national infrastructure of Nigeria that results in the death of an individual’ (Techcabal, 2015). These ‘harsh’ measures have been framed as an initiative that will help to ‘clean’ Nigeria of fraud. According to some commentators: ‘’it [preventative measures] will not only prevent the billions lost to cybercrime in past times, it will also drive revenue generation as it will encourage local and foreign investment’ (Nigerian Tribune, 2016). This optimism about a bright fraud-free future, i.e. that technology can indeed provide the fix, is notable.

However, this type of fraud is not characteristic of emerging economies only. In the UK for example, the overall financial fraud saw a 25% increase in 2015 when compared to 2014, with remote banking fraud leaping by 72%, causing the loss of more than £168m. Internet banking fraud growing 64%, and telephone banking fraud jumping to 92% according to a report by Financial Fraud Action UK. Moreover, the UK seems to be leading the way in card fraud among European countries. It is interesting that in a country where the IT industry is one of the most advanced in the world, this type of fraud is on the rise. This suggests that the issue is deeper than the availability of the latest anti-fraud technology, and rather points to the engrained social and political conditions brought about by global capitalism that are proving to be fraud-conducive, in both tech-rich and -poor countries.

The fact that countries in the Global South, in this case in the banking sector, adopt anti-fraud measures to match those in the countries in the Global North, which, it is suggested are unlikely to be sustainable, reflects a common pattern in the global order: ‘solutions’ are drafted in the North. As always, watch out for the links between commercial, slick tech-solutions on one hand and hard interests, both economic and political on the other.

Nataliya Mykhalchenko graduated from the University of Leeds in 2016 with a BA in International Development. She now works in London for a company that helps education, research, healthcare, non-profits and civil society institutions. Nataliya started researching anti-fraud initiatives in 2015 as part of a five week ESSL Summer Research Internship Scheme, funded by the alumni Footsteps and Q-steps project. The research included looking at six countries on the African continent, identifying and analysing various drivers, characteristics and repercussions of the anti-fraud measures. In 2016 Nataliya (supported by ROAPE), continued the research by looking at three more countries, including Nigeria. The above study is informed by an ongoing research project titled ‘The Political Economy of anti-fraud measures in the Global South’ (Jörg Wiegratz, University of Leeds, British Academy/Leverhulme Small Research Grant).

Featured Photograph: Finger-tip identification is a Biometric Security application that can be used to secure online login to bank accounts.


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