Nigeria lost N1.95b to POS fraud in one year: The ugly side of a cashless society?

There is no doubt that the rise of electronic payment options has made payments easier for customers everywhere. But as the volume of electronic transactions rises, online fraud is becoming more prevalent.

According to a recent report by the Financial Institutions Training Centre (FITC) on “Frauds and Forgeries in Nigerian Banks,” Nigerian banks recorded a staggering 78,584 cases of fraud within a year, shedding light on the ugly side of a cashless society.

Also, between the second quarter of 2022 and the second quarter of 2023, over 10,098 fraud cases involving a total of N1.95 billion were reported in PoS transactions. The report also highlighted 34,772 computer-based fraud cases, totalling N18.97 billion, and 33,714 mobile-based fraud cases, amounting to N6.48 billion.

The surge in online fraud can be directly attributed to the exponential growth of electronic payment channels. FITC reported a staggering 44.84% increase in electronic transactions in the first quarter of 2023, reaching N126.73 trillion compared to N87.49 trillion during the same period in 2022. This exponential growth is in line with the Central Bank of Nigeria’s (CBN) vision of reducing cash transactions by 2025 and favouring the use of cashless terminals.

Read also: Nigerian banks lose N5.46bn to fraudulent loans in Q2 – FITC

Balancing the convenience and risks of a cashless society

The increasing prevalence of electronic payment methods has undoubtedly reshaped the way we conduct financial transactions. The convenience and efficiency of cashless transactions are undeniable, but they come with a caveat: the escalating threat of online fraud. As the FITC report and various stakeholders have highlighted, Nigeria is grappling with a growing menace in the form of online fraud.

Ms. Celestina Appeal, Chairperson of the Committee of e-Banking Industry Heads (CeBIH), noted that online fraud could become the most prominent form of fraud by 2030 as transactions increasingly shift to digital platforms.

“Today, more purchases are done through online payments. e-banking is now globalised. But as things become seamless, there will be risks. The fraudsters are also trying to expand their strategies. Every year, the finance sector records losses in billions. According to NIBSS’ reports, the volume of fraud successfully carried out has increased about four times between 2019 and 2021,” she explained.

Musa Jimoh, the Director of Payments System at the CBN, confirmed that the rate of fraud had expanded, highlighting that fraudsters adapt quickly to new channels and regulatory measures.

“The rate and incidence of fraud have actually expanded. More frauds are being committed. Once you open a new channel, people study it and they begin to penetrate. Once the CBN issues a regulation around the payments system, the next thing they do is to see where the compromises are.”

Musa Jimoh, the Director of Payments System at the CBN

Victor Irechukwu, Head of Engineering at OnePipe, voiced concerns that the rising rate of fraud could hinder the adoption of e-payment platforms in Nigeria. He pointed out that negative experiences resulting from fraud incidents can deter individuals and the country as a whole from embracing a cashless economy.

The Association of Mobile Money and Bank Agents in Nigeria has also raised the alarm about theft and fraud through PoS terminals, often committed by unlicensed PoS agents. Victor Olojo, the President of the association, noted that such fraudulent activities are significantly affecting the PoS industry.

Read also: ‘Yahoo yahoo’: Is it possible to rehabilitate internet fraudsters to become techies?

What can be done?

The statistics are alarming, with thousands of fraud cases recorded, amounting to billions of Naira in losses. This raises a pressing question: Is the convenience of a cashless society worth the risks it poses?

The answer isn’t straightforward. On the one hand, a cashless society offers numerous benefits, including increased transparency, reduced handling of physical cash, and improved efficiency in financial transactions. It promotes financial inclusion and provides opportunities for businesses to thrive in an interconnected digital ecosystem. However, the flip side reveals a disturbing reality: fraudsters have adapted to exploit the very channels designed to make our lives easier.

The FITC report on the surge in online fraud cases in Nigeria is a stark reminder of the need to prioritise cybersecurity in our quest for a cashless society. While the benefits of electronic payments are undeniable, they come with inherent risks that cannot be ignored.

Regulators and financial institutions must stay ahead of the curve in combating fraud. The rapid evolution of technology necessitates constant vigilance and adaptation. Introducing stringent security protocols, educating consumers, and enhancing regulatory oversight are essential steps to curbing fraud.

Additionally, stakeholders in the financial sector must recognise that the battle against fraud is ongoing. As transactions continue to shift online, criminals will find new vulnerabilities to exploit. Thus, collaboration between industry players, law enforcement, and government agencies is crucial to staying one step ahead of fraudsters.

In response to the escalating PoS frauds, the Lagos State Government took action in 2022 to mitigate the activities of fraudulent PoS players. It announced plans to issue a Lag ID Card through its Residents Registration Agency to safeguard Lagosians from the increasing incidents of PoS fraud.