There has been a long-running debate on the prospect of eradicating financial fraud. However, the fast-paced evolution of the menace globally has made the ambition rather elusive, creating consensus that there is no panacea for all fraudulent activities, especially those that touch on digital and mobile financial services.
According to the 2022 Report on The State of Fraud and Financial Crime in the US, perpetrators of financial fraud are increasingly employing sophisticated methods to defraud financial institutions and their clients. Close to a quarter of the largest financial institutions in the US market by asset size consider the situation as the most important challenge, according to the report.
In Kenya, regulators and financial service providers have sustained efforts towards keeping the sector ahead of fraudsters and ensuring core systems remain impregnable. The strategies being adopted include continuous investment in advanced technologies and training staff on fraud detection and prevention, which have significantly reduced incidents associated with systems infiltration.
Ironically today, the frequency and magnitude of financial fraud incidents can be pointed back to rapid technological innovation in the financial services sector. As innovators create new financial service solutions and try to improve existing technologies, cybercriminals are also rummaging persistently through systems for complex vulnerabilities that can be exploited.
Fraudsters have also perfected their treachery and continue devising nefarious strategies aimed at hoodwinking the public into divulging sensitive security details such as PINs and passwords.
In recent years, financial services have increasingly been automated, in a trend firmed up further by the Covid-19 pandemic. According to the Banking Industry Customer Satisfaction Survey (2021), the switch to digital platforms continued to rise from 2020, with up to 60 percent of over 29,000 respondents surveyed preferring contactless banking through channels such as mobile, the Internet and cards.
The Central Bank of Kenya’s Kenya Financial Sector Stability Report released in July this year also shows growth in mobile banking from 14 per cent in 2009 to 84 per cent in 2022. While the rapid adoption of mobile money has enhanced convenience and access to financial services, it has also expanded the scope of fraud.
Currently, most fraud incidents target vulnerable users through identity theft, social engineering, phishing emails, among other forms of fraud that exploit low levels of security awareness on the part of consumers.
In 2021, the Kenya Bankers Association identified social engineering, identity, and domain theft as the most persistent safety threats. Cutting across these threats is the fact that the target is largely the users of financial services, making a strong case for enhanced consumer education on threat trends and mitigations.
Considering the evolving nature of fraud, there is no doubt that an empowered consumer is the most effective frontier in addressing emerging safety challenges, whose scope has now expanded to include data breaches. More resources should be devoted towards containing fraud through more bank staff capacity building programmes and public education programmes.
Through sustained public awareness, certain types of fraud have been contained. These include ATM card skimming, which was previously a major challenge in card transactions in Kenya.
The adoption of Chip and PIN technology provided an additional security layer in cards and online transactions, enabling customers to make secure transactions on merchants’ websites and through point-of-sale terminals across the country and internationally.
Although card-related fraud has scaled down significantly, identity theft cases in mobile and online platforms and social engineering remain a key challenge that can be addressed through sustained consumer education. This can be achieved through collaborations between and among stakeholders in the financial services sector.
In recent years, data has shown a consistent spike in the level of consumer-related fraud incidents in the month of December. This has been attributed to the fact that the level of spending goes up during the festive season, with shopping and other purchases.
The level of disposable incomes during the period is also higher, given that individuals tend to save throughout the year in readiness for the festivities.
Unfortunately, this also happens to be the time when most people drop their guard and end up compromising the safety of their hard-earned savings by sharing confidential security details to third parties.
As we gear up for the festive season, remember that while your financial service provider has put measures in place to secure your money, you also have a responsibility in its security by protecting your PIN, password and other personal information. Don’t let fraudsters spoil the festive mood.
