As Crypto Gets Flak, Nigerian Banks See Fiat-Based Fraud Spike

The numbers have rolled in on the state of fraud in the Nigerian banking system and there are quite some worrying bits.

The latest Industry Fraud Report by the Nigeria Inter-Bank Settlement Scheme (NIBSS) has it that Nigerian banks lost NGN 3.5 Bn (USD 8.4 Mn) between July and September 2020 to fraudulent activity. That amount represents a spike of 534 percent when compared to the same period in 2019 when the figure recorded was NGN 552 Mn (USD 1.3 Mn).

Per the data that was made available, the highest number of fraudulent cases (35.5 percent of the total) were committed on the web channel; these are transactions that are done using a web browser. In addition, transactions done over phones were responsible for a loss of NGN 410 Mn (USD 995 K) and this accounts for 11.7 percent of the entire value that was lost to fraudulent activity during the period under review.

Online fraud has become a headache in the Nigerian financial system ever since 2014 when the Central Bank of Nigeria (CBN) began to step up efforts to deepen cashless transactions and the electronic banking system in the country.

In 2018 alone, the banking system lost about NGN 15.5 Bn (USD 37.6 Mn) to fraud-related incidents, and about 60 percent of that amount was lost to fraudulent activities carried out via online channels.

Interestingly, the CBN recently opted to make life a lot more uncomfortable for cryptocurrency exchanges in the country when it ordered banks to sever any ties with any accounts that can be connected to crypto platforms.

Since then, crypto startups operating in Nigeria’s USD 200 Mn-a-month crypto market have had to find their way around a big hurdle that limits their ability to enable the trade of cryptocurrencies on their platforms.

Obviously, one of the reasons for this move, as the CBN later revealed in a press release, is the purported high risk of fraudulent activity which they find to be a huge concern with cryptocurrency trading. However, it sure looks like Nigeria’s banking system is no less vulnerable when it comes to fiat-based fraud.

The Nigeria Deposit Insurance Commission (NDIC) estimates that Nigerian banks lost over NGN 15.5 Bn (USD 41.6 Mn) to fraud in 2018. This was a huge leap from what the banking industry recorded in the previous four years. Between 2014 and 2017, the industry lost around NGN 12.30 Bn (USD 29.8 Mn) to various frauds, of which about 89 percent was orchestrated via electronic channels.

As part of the details in the NIBSS’s latest Industry Fraud report, it’s stated that web and mobile were the most-used fraud channels in the second quarter of 2020, both accounting for a combined 71.42 percent. That tops the 68.65 percent recorded in the third quarter of the same year.

However, fraud volume on mobile in the third quarter dropped by 5 percent when compared to the second quarter of 2020. Also, fraud volume and value dropped across all channels overall.

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