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Digital Fraud Spikes In Africa As Digital ID Machinery Plays Catch Up

By  |  February 2, 2023

Digital fraud rates across the African continent grew by an all-time high 28 percent in 2022 even as interest among African countries in developing critical digital identity infrastructure is growing, reveals a new report by the Pan-African digital ID verification company, Simile Identity.

Utilizing approximately 50 million KYC checks conducted across nations and businesses, The 2022 State of KYC (Know Your Customer) in Africa report reveals fraud tendencies. According to the data, the percentage of attempts deemed fake or illegitimate has steadily increased since 2020 as investments in digital ID infrastructure continue to be matched by steadily-evolving fraud trends.

“While the three-year trend suggests an upward trajectory of fraud, it’s interesting to note that the percentage of fraudulent attempts in 2022 declined slightly in the second half of the year. This is likely due to a reduction in incentive-based marketing campaigns as businesses slow their growth spend,” the report explains.

Meanwhile, scammers have profited from the pandemic-related shifts in consumer behaviour, including greater reliance on passwords and OTPs and an increase in bank-to-mobile transactions. Many different methods are used by fraudsters to steal personal information and exploit it to perpetrate crimes.

“Private Telegram channels, WhatsApp groups, and hacker websites spread new strategies to rake greater rewards,” says the report.

The significant surge in fraud observed during the pandemic, when many workers across the continent switched to remote workspaces, is also highlighted. According to the survey, many firms need a solid understanding of effective remote user verification. However, more African firms are increasingly utilizing face recognition technology and biometrics to quickly and accurately identify and onboard people online.

“Local ID databases remain the most robust source of truth for KYC, but frequent downtime remains a major obstacle. Document verification is a reliable backup to maintain service and expand to multiple international markets,” Smile says.

According to the findings, the digital identity drive in Africa is also well on course and the company believes the trend is part of what will unlock Africa’s economic potential and create more opportunities for growth and prosperity.

“Ninety-four million Nigerians have already registered biometrics as part of the NIN (National Identification Number), leading the way in digital ID adoption in Africa,” states the report, which adds that other African countries such as Uganda and Kenya are in the midst of implementing similar digital ID programs.

In line with the previous report, Smile Identity’s latest piece of research suggests that biometric KYC checks are more effective and efficient at identifying ID fraud, noting that on average, text-only KYC misses 50 percent of fraud incidents.

According to Smile, biometrics combined with ID verification is the best starting point for preventing ID fraud. As an illustration, Smile says crypto platforms using its ID verification system for KYC experience 46 percent less fraud than platforms in other industries.

Also, efforts at expanding access to goods and finance for businesses and customers on the continent through the Buy Now Pay Later (BNPL) sector have given bad actors new possibilities to exploit credit scores before defaulting.

“It also allows fraudsters to commit account takeovers and get away with high-value items without transacting,” the report elaborates.

The major types of fraud revealed by the research include synthetic fraud, duplicate accounts, selfie “Spoofs,” stolen ID information, and more. Synthetic fraud entails utilizing computer vision algorithms to fabricate face images that closely resemble those of actual individuals. In order to register bank accounts, submit loan applications, or make purchases, the fraudster then combines some legitimate textual KYC information with these phoney biometrics (sometimes stolen). This leaves banks and victims with a hefty debt.

The report also reiterates the importance of KYC in the digital era in not only catching fraud but also ensuring that real users successfully onboard and become valuable customers. Issues such as the enforcement of data privacy and protection measures with case studies on Ghana, Nigeria, Kenya, South Africa, and Uganda, as well as fraud trends, types of fraud attacks and how such frauds can be prevented, are also highlighted.

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