• Cashless Policy: Nigerians Count Losses in Billions

Exactly five years after the much-hyped cashless policy of the Central Bank of Nigeria (CBN) became fully operational nationwide, there has been an upsurge in the wave of e-banking and other related crimes with over N2.19b lost in 2016 alone. Bukola Aroloye in this report examines the issues.

What finance-related frauds have been on the increase should be a cause of worry to all concerned, especially because such frauds ride on the back of technology. This is particularly true of electronic banking transactions, which ironically the cashless policy of the Central Bank of Nigeria, CBN, was supposed to address frontally.

Cashless policy in brief

The CBN launched the Cashless Nigeria Project in Lagos State, in January 2012, and extended the policy to the Federal Capital Territory (FCT), Abia, Anambra, Ogun, Kano and Rivers States in June 2013.

The policy was initiated against the backdrop of cash dominance in the payments system, a development which encouraged the circulation of huge sums of money outside the banking system and imposed huge currency management cost on the economy. The policy was meant to ensure price stability through effective monetary policy; sound financial system and efficient payments system.

It was a critical part of the payment system modernisation, designed to promote the use of Automated Teller Machines (ATMs), Point of Sale (PoS) terminals, web payment, online transfers and even mobile money in banking transactions instead of relying on cash.

Former CBN Deputy Governor, Operations, Tunde Lemo, who oversaw the cashless policy for the first two years – after its introduction, admitted that there are challenges with the e-payment system but denied that most of the PoS terminals are not working effectively. He said there are challenges with bandwidth of the telecommunications service providers.

“We spoke to the service providers on the need to improve bandwidth which they did and we saw improvement in the Lagos area. We have started talking to NICOMSAT, and they did a test-run in Lagos area and we are satisfied about their proposition. So within the next few weeks, you will notice improvement in connectivity in Lagos area at least,” he said.

Lemo said some supermarket attendants sabotage the system and tell customers that the PoS is not working because paying through the machine denies them the access to tips or free left over cash of N20 or N40 from customers.

“In one of our meetings with the merchants, we told them to build-in some reward system that will still allow the attendants access to the free change they get from customers even as tips without compromising the standard of service. When we do that, you will discover that these things work,” he said.

Banking security fears

Such concerns over banking security have put wide embrace of e-payment channels in abeyance. A recent survey by Visa International showed that high net worth account holders neither own nor use ATM cards. The study revealed that people that earn below N500, 000 per annum, who form 47 per cent of its respondents, own and are regular users of debit cards, including for online purchases. It showed that the higher people earn, the less they own and use their debit cards. Majority of the rich, it said, think that avoiding debit cards is the best way to stay protected from online frauds.

Data obtained from the CBN result for 2012 showed the bank received and processed 6,274 complaints, via e-mail on various financial crimes, particularly advance fee fraud. There were 4,527 cases of fraud and forgery involving the sum of N14.8 billion and $1.6 million.

The CBN also received and investigated four complaints against commercial banks even as the issues were promptly reported to law enforcement agencies such as the Economic and Financial Crimes Commission (EFCC) for investigation. Globally, estimated credit card fraud stood at $11 billion in 2012, making it one of the most significant criminal developments in modern times.

How safe are the ATMs?

According to experts, Nigerian banks are using an outdated Microsoft Windows operating system, which is vulnerable to hacking, for their operations. This is partly responsible for the frauds associated with their operations. Microsoft Nigeria said 95 per cent of all ATMs which run on Windows XP operating system are vulnerable to hacking.

More damning reports

The Central Bank of Nigeria (CBN) has said the Nigeria InterBank Settlement System (NIBSS) recorded over 1,200 per cent increase in reported fraud cases in 2016, estimated at N2.19 billion when compared to 2014 cases.

According to ‘Dipo Fatokun, CBN’s Director, Banking and Payments System Department and Chairman, Nigeria Electronic Fraud Forum (NeFF), in its latest report, the industry processed transactions in 2016 that amounted to 278,744,529, while the value was over N64 trillion.

While there was an increase of 71 per cent in volume of transactions, there was also an increase of 31 per cent in the value of transactions compared to 2015.

He said the industry recorded about 82 per cent increase in reported fraud cases when compared to 2015 and over 1200 per cent when compared to 2014.

Despite the 82 per cent increase in the reported fraud cases, with an estimated N2.19 billion loss to fraud, the industry was able to reduce fraud by 2.7 per cent when compared to the 2015 figure, he said.

“Comparing the attempted fraud against the actual loss, the industry was able to salvage 49.7 per cent of the total amount attempted by the fraudsters within the year. These figures informed us that there are more attempts on yearly basis with different innovation tricks or modus operandi to take advantage of the system,” he said.

Looking ahead into 2017, Fatokun said the financial industry as a whole must collaborate to ensure a wider gap exists between the attempted fraud and actual loss, adding the analysis in this report would allow us to benchmark and also understand where the vulnerabilities lie.

Despite the attraction of digital banking, the threat of cybercrime remains a concern to banks and their customers. On daily basis, bank customers are inundated with scam mails by fraudsters, in their attempt to hack into the customers e-banking details. The Nigeria Electronic Fraud Forum (NeFF) estimated that about N33 billion was lost to e-fraud in 2016 and beyond. NeFF therefore warned bankers and the banking public against responding to messages that fly into their phones and e-mails on daily basis claiming falsely to originate from banks.

The forum also said it was looking critically at measures that will protect the industry as a whole from the menace of social engineering attacks.

Fatokun said: “Social engineering has become rife in cybercrime attacks in Nigeria. Almost on a daily basis, a plethora of messages are sent by these criminals with the express intent to con the unsuspecting recipient using techniques that appeal to vanity and greed. It is therefore important that we look critically at measures that will protect the industry as a whole from the menace of social engineering attacks.”

The foregoing clearly shows that despite the challenges of infrastructure and cybercrime, by leveraging digital payments, banks can potentially double their payments-related revenue, beating new entrants at their own game. This new thinking about the core value proposition of banking will, however, require an entirely new approach to operations and solutions innovation.

Nevertheless, in order to be competitive in the digital space, banks must design hands-on education campaigns to change their customers—from cash users to cheque writers—to the advantages of digital banking. This means changing the way consumers shop, pay their bills, and manage their finances. Banks will need to undertake an aggressive drive to bring occasional users into the circle of loyal digital customers.

Echoing similar sentiments, Jeremy Boorer, International Director, Easy Solutions, said of the 17 Nigerian banks recently surveyed majority deploy fake mobile apps.

“In 15 of them, we found the following: The firs t to 10th banks checked were found with 13, 10, 17, eight, 11, eight, nine, 13, seven and 20 fake mobile apps respectively. The 11th to 15th banks were also found with 11, 14, 13, 16 and 15 fake mobile apps.”

He warned bank customers that app stores were full of fake apps claiming to come from banks, saying once a customer downloads and enters financial information, including credit/debit cards details and personal identity numbers (PIN), his/her money is gone as the fraudster will clone the cards or transfer the money through online banking immediately.

“In the last four weeks, we discovered that hundreds of defacement attacks are going on Nigerian banks by hackers. It against highlights the fact that the websites are not totally secure. Email is still the primary attack channel. They pretend to be customers of the banks to contact the bank. E-fraud is initiated through account takeover, new account and true person/mule.”

Boorer said all channel fraud happens in one of the above fraud types through malware, phishing, social engineering, account opening process gaps (KYC/CIP).

According to him, “Social media seems to be a concern as banks create social media accounts and ask prospective customers to open bank ac-counts on social media.

“Fake banks are springing up on the social media and the data that are used to open such accounts, you don’t know where it ends. There are financial motivations to trick people to create social media accounts to steal financial/credit information which are sold in the dark internet market for as low as $10 by competing dark internet hacker sites.”

But Fatokun, who was represented by Mrs Margaret Ogundana, head, Banking and Payment System, CBN at a seminar in Lagos recently said the apex bank was not just advocating e-payments but doing all it could to ensure that users’ funds are well protected as they embrace e-payment.

“CBN has, therefore, been a champion for the fight against e-fraud in Nigeria. Several initiatives, directives and fora of this nature had been at the forefront of our activities at CBN,” he said, noting that the apex bank in 2010 introduced EMV cards policy which reduced the card fraud to the barest minimum.

Way forward

Director General of the West African Institute for Financial and Economic Management (WAIFEM), Professor Akpan Ekpo, cautioned banks to be careful with the deployment of digital banking services.

While Ekpo pointed out that electronic banking channels were not bad, he held the view that a large chunk of the country’s population resided in the rural areas and lack basic infrastructure required to access digital banking.

“Electronic banking is not bad. But we must be concerned about those in the rural areas. Most bank customers live in the rural areas where the basic infrastructure is lacking and we must understand that we have just a small segment of urban dwellers. Even the cashless policy is not effective in a lot of areas. There is also the concern of cybercrime, which is also a threat to digital banking,” Ekpo stated.

National Chairman, Progressive Shareholders Association of Nigeria (PSAN), Mr. Boniface Okezie, said Nigeria was not ripe for the digital banking revolution.

He urged banks to continue to increase their brick and mortar branches, arguing that the cashless policy has not been successful.

According to Okezie, the country must first address its major infrastructure issues before delving into the technology innovation.