For banks, frauds and forgeries are a big challenge. No matter what banks do to avoid these problems, they still rear their heads. Does that mean there is no way out? Stakeholders believe there is. At the Nigeria Electronic Fraud Forum (NeFF) conference in Lagos last week, they proffered the way out of the quagmire, writes COLLINS NWEZE.
Many view banks with suspicion and the reason is obvious. It is believed that banks are the citadel of frauds, forgeries, among others. This is why some people do not put their money in banks. But are banks that bad? They may not be that bad, but their reputation is not helping matters.
Banks too know that they are held in low esteem. This is what may have prompted them to take steps to curb fraud in the sector.
Data obtained from the Central Bank of Nigeria (CBN) showed that in 2012, banks received and processed 6,274 complaints, via e-mails on various financial crimes, particularly advanced fee fraud. There were 4,527 cases of fraud and forgery involving N14.8 billion and $1.6 million.
The CBN also received and investigated four complaints against commercial banks. The cases were reported to the Economic and Financial Crimes Commission (EFCC) for investigation. Globally, estimated credit card fraud stood at $11 billion in 2012, making it one of the most significant criminal developments in modern times.
These fraud statistics prompted the Nigeria Electronic Fraud Forum (NeFF) to take steps to stem the practice.
Last weekend, the NeFF which comprises banks, Nigeria Interbank Settlement System, the Police and EFCC met in Lagos to discuss the way forward.
Piqued by the rising electronic fraud (e-fraud), the Managing Director/Chief Executive Officer of Enterprise Bank Limited, Mallam Ahmed Kuru, called on banks to establish anti-fraud departments to curb the menace.
Delivering a keynote address titled: “When all goes wrong: Mediation and arbitration best practices,” Kuru, represented by Head, Strategy & Corporate Transformation, Chuks Ekpunobi, said it was time for banks to collaborate to eradicate e-fraud, which he described as a “common enemy.”
He said electronic fraud has been in an upward swinng since 2010 and needed to be checked. He said this was worrisome because the increase is in terms of the number, volume and sophistication driven by high powered technology. Unfortunately, however, he argued that bankers, auditors and internal control officials of financial institutions may not be as knowledgeable as the fraudsters.
“Therefore, if we are to make progress in this direction, banks need to, as a matter of urgency, establish anti-fraud departments with staff that would always be ahead of the fraudsters in every sense of the word.
“Every financial institution should take the issue seriously because this year alone, the industry has lost about N2 billion to electronic fraud from the first and second quarters. Should this trend continue, about N5 billion would be the estimated loss by the end of 2014. If this is not checked, the trend will lead to unbearable levels of capital erosion in the system,” he said.
The establishment of anti-fraud units, he said, will provide continuous improvement initiatives in fraud control and present a platform for the implementation of viable fraud management solution to highlight deviations of fraudulent transactions from normal transactions; ensure compliance to Payment Card Industry Data Security Standard (PCIDSS) initiatives of the CBN as well as guarantee the implementation of other Fraud Control measures and Security initiatives both on the network, and applications of the bank. It will also ensure the implementation of a Database Access Monitory (DAM) and Account Access Monitory (AAM) solutions, among others.
While commending the organisers for choosing to deliberate on this trend that is plaguing the industry, Kuru said he sees the establishment of the NeFF as a collective step in the right direction in the attempt to eradicate e-Fraud in the financial sector because NeFF provides the opportunity for practitioners to share knowledge about global trend in e-Faud, industry trend as well as new methods of perpetrating fraud among other issues that affect every bank. He argued that this was the only way banks can protect their funds from relentless fraudsters.
Interswitch, an electronic transaction switching and payment processing company called for an upgrade in the technology, processes and systems to proactively detect suspicious activities in place.
In response to emailed questions, the firm said cardholders also need to be constantly educated on keeping their banking details fully protected.
The firm said this has become important because fraudsters keep developing new fraud mechanisms to circumvent new security measures. The firm claimed it has adopted and holds certifications in the highest standards available in the payment card industry. “In terms of card standards, we are EMV 4.0 certified and in terms of security, we are Card Industry Data Security Standard certification (PCIDSS) V3 certified. We have also attained ISO 9001:2000 for our processing services,” it said.
Continuing, it said aside such certifications, its Verve product, has a unique feature for card-not-present transactions.
“A card-not-present transaction is a payment card transaction made where the cardholder is not physically present with the card at the time that the payment is affected. In order to safe guard cardholders when conducting card-not-present, we have introduced SafeToken. SafeToken is an online security technology that protects customers against unauthorised use of their cards via the web through the generation of One-time passwords (OTPs),” it said.
Interswitch also said as a second layer of defence, it has also introduced Scorebridge which is a fraud management system that enables Electronic Financial Transaction (EFT) messages to be processed through predefined Artificial Intelligence in order to determine the transaction’s risk and probability of a fraud. This enables the monitoring of card patterns and declines suspicious transactions.
“Banking security has got so many banks thinking about safety and reliability of their networks. What steps do you think that lenders need to take to guarantee customers’ transaction security and trust? Over the years, the banks have invested a lot in different security measures to guarantee customer transactions, but as a minimum, all banks should have the following measures in place: Defining a baseline security standard (such as PCIDSS) Educating customers on safe security practices when using their cards Investing in a fraud management system,” it said.
On the cash-less policy instituted by the Central Bank of Nigeria (CBN), it said the direct cost of handling, processing and managing cash across the nation as at 2009, stood at N114 billion and could have increased if the cashless policy had not been introduced.
“The good thing we have also done as stakeholders in the e-payment industry are to also introduce solutions that would drive adoption of the cash-less policy. These solutions have been designed to address the specific needs of the ordinary Nigerian towards the adoption of e-payment,” it said.
Founder and Managing Director, DataPro Limited Abimbola Adeseyoju said criminals know that there are compliance procedures, such as Know Your Customer (KYC). They, therefore, come prepared, hence the need for lenders to go the extra mile in verifying their customers’ identities.
He said fraudsters either modify their identity slightly, or create a synthetic identity which can be detected through a Link Analysis Solution. This applies advanced analysis to determine the risk level for both the network and every individual associated with the network, he said.
Examples of attributes that could be shared and linked are Personal Identity Information, Account Information and Transactional Information.
“Once the entities are linked together, advanced analytics are applied to determine the level of risk and create a risk score. The i2 Notebook used by the Financial Intelligence Unit (FIUs), among others, enables them to search multiple data sources simultaneously, find hidden links and entities and visualise transactions and timelines,” he said.
Adeseyoju advised financial institutions to pay special attention to all complex, unusually large transactions, or unusual patterns of transactions that have no visible economic or lawful purpose. Continuing, he said the lenders should investigate suspicious transaction and report its findings to the NFIU immediately.
However, Deposit Money Banks (DMBs) have continued to promote and support the CBN KYC initiative. The lenders, analysts said, are omitting huge funds into the KYC project because of its immense benefits in fighting fraud.
CBN’s actions
Aware of these dangers, the CBN decided to set up a five-year Information Technology (IT) Standards for banks. John Ayoh, CBN Director, Information Technology, said the exercise would help banks identify and adopt global IT Standards that address industry problems. He said banks are expected to implement the plan on continuous basis and in accordance with set timelines.
CBN said the introduction of chip and pin payment cards have led to drastic drop in ATM card fraud. It said the CBN and other relevant institutions have been able to reduce card frauds considerably by instituting ATM Fraud Prevention Group and the NeFF. The groups are to enable banks to collaboratively share data on fraud attempts and proactively tackle them to reduce losses.
The CBN also instructed banks to set and implement mandatory daily limits for ATM cash withdrawal, while other related transactions, including POS and Web purchases should be subjected to stringent limit as agreed and documented between the banks and customers. It said it is the responsibility of the banks to ensure that a trigger is automatically initiated when limits are exceeded.
Speaking at the Committee of Chief Compliance Officers of Banks in Nigeria (CCCOBIN) in Lagos, Emefiele said Nigeria has adequate legal and regulatory measures that should address breaches to the KYC, Customer Due Diligence (CDD) and Enhanced Customer Due Diligence (EDD) provisions.
“It is the application of these KYC provisions that are meant to reveal illegitimate sources of funds and trigger investigation by relevant stakeholders that matters. Like in many developing countries, compliance has been a major regulatory challenge in Nigeria,” he said.
