Digital payments in Nigeria have grown at an exponential rate over the last several years. This is wonderful for the overall financial system, however, the downside of this exponential growth is that payment fraud has also grown - largely unchecked. Thus posing a substantial threat to the nation's financial stability and undermining trust in digital financial systems.
Types of Payment Fraud in Nigeria
Card Fraud
Card fraud is the unauthorized use of a credit or debit card, or similar payment mechanism, to fraudulently obtain money or make unauthorized purchases. Some common types of card fraud include the use of lost or stolen cards, the use of card information like card number, expiry etc (card not present fraud), the creation of fake cards through skimming devices that capture card details from the magnetic strip, etc.
Phishing and Social Engineering
Phishing and social engineering are tactics used in payment fraud to deceive individuals into revealing sensitive information such as credit card details, bank account information, or login credentials. In phishing, fraudsters send deceptive communications, usually in the form of emails, text messages, or websites, that appear to come from legitimate sources. The goal is to trick recipients into providing sensitive information or downloading malicious software. Social engineering has the same goal as phishing, however unlike phishing, which primarily relies on digital communication, social engineering can occur through various means, including in-person interactions.
Identity Theft
Identity theft in payment fraud occurs when a fraudster obtains and uses someone else's personal information, to commit financial crimes. The primary goal is usually to make unauthorized transactions, open new credit accounts, or gain access to the victim's existing financial accounts.
SIM Swap Fraud
SIM swap fraud happens where fraudsters manipulate mobile carrier systems to transfer a victim's phone number to a new SIM card controlled by the fraudster. This allows the fraudster to receive calls and text messages intended for the victim, including those used for two-factor authentication (2FA), which can then be exploited to gain access to the victim’s financial accounts, email, and other sensitive information. This includes receiving banking alerts and OTPs (One-Time Passwords) for transactions.
Account Takeover
Account takeover occurs when a fraudster gains unauthorized access to a victim's financial accounts, such as bank accounts, credit card accounts, or online payment services. Once they have control, the fraudster can conduct fraudulent transactions, steal funds, and engage in other illegal activities.
Fighting Payment Fraud
As you can see, payment fraud can involve multiple types, and so combatting payment fraud requires a multi-pronged approach. Here are some suggestions on how to combat payment fraud:
Adherence to Laws and Regulations: Strict implementation of the laws and regulations that have been put in place by the key regulators in Nigeria like the Central Bank of Nigeria (CBN), the Securities and Exchange Commission (SEC), the Nigerian Financial Intelligence Unit (NFIU) and so on.
Use of Technology: Investing in effective technology systems for onboarding and ongoing monitoring of customers. Including AI-powered fraud detection systems, and robust encryption protocols.
Public Awareness Campaigns: Increasing public awareness about the risks of payment fraud and promoting safe online practices can also help to reduce the number of successful payment fraud attempts.
Conclusion
Payment fraud remains a formidable challenge in Nigeria, threatening the integrity of its financial system and the trust of its people.
For more information about how Regfyl can elevate your company’s fraud prevention activities, please click here to book a demo and consultation with one of our Regfyl compliance experts.
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