The rate of fraud in Nigeria increased exponentially in the last year. A total of over N5.2 billion was reportedly lost to fraud during the first 9 months of 2020. This is according to the recently released Fraud in the Nigerian Financial Service report by the Nigeria Inter-Bank Settlement System Plc (NIBSS).
The NIBSS explained that the increase in fraud is a side effect of the increase in transaction speed and available channels.
Globally, fraud has resulted in the loss of over $42 billion.
This, however, is not peculiar to Nigeria as financial institutions in the United Kingdom saw a 300% increase in financial fraud following the implementation of a faster payment network.
Similarly, the growth of Zelle in the U.S also led to a 90% fraud rate in some financial institutions.
Fraud rate grew 186% in 2020
The industry fraud data for 2020 (Jan – Sept) shows a significant hike in mobile fraud and a still higher rate of web fraud in the country.
However, that isn’t the worst part as data from NIBSS show that the fraud attempt almost tripled year on year. The total attempt recorded as of Q3 2020 was 46,126, a 186% increase from the 2019 numbers.
91% of all fraud attempts in 2020 resulted in total loss.
Fraud attempts via mobile channels saw the highest spike, increasing 330% YoY. Other channels like web (173% YoY) and POS (215% YoY) also saw a significant increase in attempts.
Explaining the huge increase, the NIBSS explained that Nigerians becoming increasingly dependent on electronic channels, especially mobile devices, has enticed fraudster into focusing their efforts on electronic channels.
It added that it expects the trend to continue as Nigeria’s financial inclusion grows deeper.
Rate of Fraud dropped post-COVID
One of the reported causes of the spike in fraud, the increase in electronic channels, is one of the side effects of the COVID-19 pandemic.
The pandemic presented a challenge that forced people, businesses and even the government to adapt to a new normal. This created a need for contactless payment and remote interactions which promoted electronic payments.
The reports show that the rate of fraud increased pre-COVID with fraudsters increasing efforts in the area of social engineering.
During the pandemic, Spear-phishing attacks increased sevenfold.
However, the number dropped after the COVID-19 lockdown in April. This, according to the report, gave financial institutions time to counter the new tactics employed by fraudsters.
Social engineering remains the favourite tool for fraudsters in Nigeria. Data from the industry shows that 56% of all reported fraud attempts were carried out using social engineering.
Social engineering is a broad range of techniques that involve compelling a victim into giving sensitive information using psychological manipulation.
Other major fraud techniques employed to steal from Nigerians include lack of two-factor authentication (19%), Phone theft (6%) and fake assistance (5%).
Advising financial institutions on ways to mitigate fraud, the NIBSS says the ability to anticipate the actions of fraudsters is key. It added that they need to keep innovating as fraudsters also evolve.
It also added that they need to keep customers informed and be perceptive enough to identify and reject fraudulent offers.
The growing numbers show the looming threat of fraud in the Nigerian financial system. Financial institutions need to be poised to promptly detect and block any fraudulent activity.
A 91% success rate of fraud recorded in 2020 is very bad and shows that more needs to be done urgently to ensure that customers are safe.