As African Firms Take Big Losses In Fraud Crisis, pawaPass Takes On Challenge

An uptick in system breaches and exploits by bad actors has resulted in mounting losses for African businesses in recent years, with fintechs among others paying the price as targets of fraud and money laundering activities.

In Nigeria, for example, a crisis is brewing as the country grapples with an alarming wave of cybercrime that saw three prominent fintech companies collectively lose more than ~USD 6 M over the first eight months of 2023, data from the Financial Institutions Training Centre shows.

Last week, Africa’s highest-valued startup Flutterwave was reported to have lost between USD 7 M to USD 13 M in a breach, following the turmoil of the previous year during which it reportedly lost USD 14 M across several breaches while managing to shake off a money laundering case in Kenya. In 2022, MTN Nigeria, the country’s top telecoms company, suffered losses from unauthorised transfers totalling over NGN 10.5 B (USD 13.3 M) due to a compromise of its mobile money service shortly after its relaunch as a payment service bank.

As concerns about the industry’s vulnerability rise, the need for potent solutions heightens. Storied entrepreneur and operator Sylvia Brune, is taking on the challenge with pawaPass; a regulatory technology (regtech) startup rethinking user verification and compliance.

The situation, she tells WT in an interview, urgently calls for an “inclusive, efficient and scalable innovation in regulatory technology, to tackle compliance failures and prevent cybercrime across sectors, to de-risk Africa’s digital business landscape.”

However, compliance presents a formidable and complicated challenge, particularly in regions like Africa with diverse regulatory landscapes.

The compliance conundrum

Compliance presents a daunting task for businesses globally, but in Africa, it takes on a unique complexity. Regulatory frameworks constantly evolve, demanding businesses stay abreast of changes to avoid penalties or potential shutdowns.

Brune succinctly encapsulates this challenge, stating, “The regulators are changing things every day. They expect you to be up to date on everything and, at the same time, they say you need to take a risk-based approach.” This dual expectation places immense pressure on companies to not only comprehend but also proactively manage their compliance risks.

The ramifications of non-compliance are grim. According to the African Development Bank, Africa loses an estimated USD 90 B annually to illicit financial flows, emphasising the urgency for robust compliance measures.

Additionally, anti-money laundering sanctions on global financial institutions surged by 57 percent in 2023 alone and another study suggests around USD 4 B is lost annually to cybercrime in Africa.  Moreover, financial executives in Africa have identified cybercrime as a greater risk than political instability according to Deloitte’s 2023 African Financial Industry Barometer.

A shot at solving the puzzle

pawaPass emerged in 2022 from the need to simplify and streamline compliance processes for African businesses, promising a unique combination of low-touch data points, non-ID-based user verification, and anti-duplication technology to build fit-for-purpose and compliance solutions for African businesses.

Its solutions, WT understands, are being utilised in the gaming and sports industry across Rwanda, Uganda and Ghana where it verifies over 6000 payouts for athletes worth up to USD 132 K a year, having also proved effective in identity verification and fraud prevention for both finance institutions and government security protocols.

“pawaPass can be used by digital businesses of all sizes; it’s scalable – works across geographical regions respecting unique data requirements; inclusive – ensures genuine users have access to required services; and sector-agnostic,” explains Brune.

Drawing from her background in investment and entrepreneurship, Brune adopts a cautious yet strategic approach. She emphasises the importance of market validation before seeking investor funding. “My background coming from the investor side and having started another company made me cautious about rushing to investors before a viable product-market fit is established,” she says.

This approach enabled Brune to focus on creating a product that addresses market needs. By engaging with customers and iterating based on their feedback, pawaPass has developed solutions that appear to be making significant inroads.

Notably, as Brune pointed out, the fledgling startup was leveraged for compliance purposes in the deployment of USD 2 M worth of shares for Mchezo to 200,000 betPawa customers across 11 African markets in 2023, showcasing its versatility and applicability across various sectors.

A collaborative effort

Collaboration forms a cornerstone of pawaPass’s strategy. Brune underscores the importance of aiding businesses in understanding the risks they face and how to mitigate them. “It’s about helping them understand the risks they’re taking. If you understand the risks and vocalise them at every step, you can decide if the trade-off is worth it.”

However, achieving this level of transparency is challenging. Companies often hesitate to disclose their compliance vulnerabilities for fear of regulatory scrutiny or reputational damage. Brune acknowledges this reluctance, stating, “Getting people into a room to speak openly about the gaps in their knowledge or systems is vulnerable. I think it would be amazing, but I doubt a fully open conversation like that will happen.”

Tailored fixes for unique challenges

pawaPass seeks to distinguish itself by offering bespoke solutions tailored to the specific risks African businesses face. This approach begins with a comprehensive risk assessment. “Start with understanding the risks associated with the business and the end-users. Compliance efforts and security measures should be proportionate to the level of risk involved,” Brune shares.

The Founder also stresses the importance of avoiding overprotection in low-risk areas, particularly in resource-constrained environments like Africa. Instead, pawaPass focuses on striking a balance between security and user convenience while ensuring that security measures are effectively communicated to users.

User education forms another critical component of pawaPass’s strategy. Brune reiterates the need to make users aware of the benefits of security measures to drive better adoption and compliance. “How do we educate users in simple ways? How do we make it clear that some security measures, while inconvenient, are essential?” she notes.

By leveraging agent systems and other innovative methods, pawaPass aims to untangle complex compliance requirements and empower users to protect their financial identities.

Charting the course ahead

Moving forward, Brune remains cautiously optimistic about the future of regtech in Africa. She anticipates an increase in available solutions as more entrepreneurs recognize the pressing need for robust compliance tools. However, she also acknowledges that these solutions might not immediately resolve all issues. “In the near future, you will probably see more and more solutions available on the market. I’m not sure that that will necessarily solve a lot of the issues that we’re seeing.”

Brune also envisions a long-term solution involving synergised platforms that can track bad actors across different financial services, preventing fraudsters from exploiting new opportunities. Companies in Nigeria’s fintech scene, for instance, are exploring such partnerships, such as Project Radar, to bolster their cybersecurity measures. However, the significant challenges associated with such an endeavour are not lost on the pawaPass Founder.

As Brune and the team at pawaPass navigate the complexities of the African compliance landscape, their focus remains on crafting solutions that are both effective and user-friendly. The CEO is betting on a pragmatic approach—grounded in thorough risk assessment and a nuanced understanding of market needs—to position pawaPass as a key player in the regtech space.

Innovations in this space, Brune asserts, hold the promise of “not just mitigating risks but also fostering a culture of compliance that can drive sustainable growth across the continent.”

UPDATE (3rd June, 2024; 12:20 WAT): Figures for the value of the payouts to atheletes have been corrected and clarification of shares to betPawa customers have been added.