Nigerian Banks And Fintechs in Talks to Combat Rising Fraud, Seek CBN Approval

Nigerian banks and fintech firms are in talks to combat rising fraud, with a proposed collaborative solution expected to be presented to the Central Bank of Nigeria by Q1 2024. 

This initiative aims to hold all financial institutions accountable for fraud, particularly focusing on Bureau de Change operators and banking agents. 

In Q2 2023, deposit banks suffered a 276% increase in fraud losses, totaling ₦9.75 billion, prompting intensified efforts by the Central Bank to address the issue through fines and regulatory measures. Stakeholders, however, express concerns about the effectiveness of these measures and advocate for a more collaborative and layered approach to fraud prevention.

Acknowledging the ongoing discussions, two fintech founders note the need for further consensus between banks and fintechs. The proposed industry collaboration aims to establish a solution that holds all financial institutions accountable for fraud, with a particular focus on Bureau de Change operators and banking agents. 

In Q2 2023, deposit banks faced a substantial 276% surge in fraud losses, totaling ₦9.75 billion, as reported by the Financial Institutions Training Centre (FITC). The overall losses from fraud incidents amounted to ₦5.79 billion during the same quarter.

Amidst the surge in fraud cases, the Central Bank of Nigeria is actively seeking solutions. In 2015, the regulator mandated deposit money banks, mobile money operators, switches, and payment service providers to establish a fraud desk, emphasizing its effectiveness in promptly addressing fraud alerts. The CBN has imposed fines on entities, including banks and fintech companies, for lax Know Your Customer (KYC) rules. 

Since October 2023, licensed entities have paid significant fines, according to a fintech founder familiar with the situation. While some industry stakeholders lauds the CBN’s mandate to link Tier-1 bank accounts and wallets to either the Bank Verification Number (BVN) or National Identity Number (NIN) by March 1, 2024, others argue that these measures may not be sufficient.

They also pointed out that banks and fintech companies have attempted to solve the problem collaboratively in the past. A low-trust environment and a preference for building in silos have led to little or no results. There have also been efforts made by CBN, CeBIH, NFIU, and NSA to unite the operators, but the solutions have not been implemented.

Furthermore, Banks express concern over the challenge of obtaining refunds in cases where fraud involves a fintech, highlighting the difficulty compared to their proactive refund approach to prevent public embarrassment and protect their reputation. 

Ironically, Nigeria’s major banks have faced accusations of lax Know Your Customer (KYC) and compliance measures. In a notable incident, MTN Nigeria filed a lawsuit against 18 banks last year, as their customers received funds from a breach of MoMo, the telco’s mobile money service.

Due to saoring fraud Banks and Fintechs in Nigeria collaboration, aims to pool resources, expertise, and technological capabilities to develop robust measures against fraudulent activities within the financial ecosystem to protect users funds.