Fintech negligence fuels rising fraud among unbanked, middle-class – EFCC

• The Economic and Financial Crimes Commission (EFCC) raises concerns over increasing fraud targeting the middle-class populations in Nigeria
• EFCC Chairman Ola Olukoyede attributes the rise in fraud to poor Know Your Customer (KYC) compliance by fintech companies
• Olukoyede urges fintech firms to strengthen onboarding processes and partner with the EFCC to combat financial crimes

The Economic and Financial Crimes Commission (EFCC) has raised alarms over the increasing rate of fraudulent activities within Nigeria's financial sector, particularly among the unbanked, under-served, and middle-class populations.

Ola Olukoyede, the EFCC Chairman, highlighted these concerns during a recent stakeholders’ meeting in Abuja. He attributed the surge in financial fraud to some fintech companies' lax compliance with Know Your Customer (KYC) protocols.

Lack of robust KYC measures

According to Olukoyede, many fintech firms fail to adhere to stringent KYC guidelines when onboarding customers for tier-one accounts. 

This negligence, he explained, exposes gaps that fraudsters exploit to commit financial crimes.

“There is a high level of poor internal control by fintechs, especially concerning the unbanked, under-served, and middle-class population spectrum,” Olukoyede noted. 

“The issue of KYC is critical. Unfortunately, some fintechs open tier-one accounts without proper KYC protocols, creating opportunities for fraud.”

The EFCC chairman called for fintech firms to revisit and strengthen their onboarding processes to eliminate these vulnerabilities.

Calls for collaboration

Olukoyede emphasised the need for greater cooperation between fintech operators and the EFCC in combating financial crimes. He urged companies to see themselves as critical stakeholders in the fight against corruption and promptly respond to regulatory inquiries.

“Increasing collaboration with the EFCC requires fintechs to view themselves as partners in the anti-corruption fight. Timely responses to our inquiries and requests are essential,” he said.

He also expressed the EFCC’s readiness to collaborate with fintech firms like Moniepoint to address fraud-related challenges. 

“We value collaboration. When stakeholders like you seek stronger ties with us, it signifies a commitment to strengthening your systems and mitigating fraud risks,” Olukoyede stated.

Alarming surge in financial fraud

Recent data from the Financial Institutions Training Centre (FITC) revealed a staggering increase in financial fraud within Nigeria. Between April and June 2024, Nigerian banks lost N42.6 billion to fraud, a sharp rise from N9.4 billion recorded throughout 2023. This represents an 8,993 per cent increase compared to the first quarter of 2024 and a 637 per cent rise compared to the second quarter of 2023.

Key highlights of the report include:

• Miscellaneous fraud, including fraudulent withdrawals and web-based fraud, accounted for 96.46 per cent of total losses.
• Fraud originating from bank branches surged by 31,497 per cent.
• Computer and web fraud increased by 1,560 per cent.
• The total value of fraud cases jumped from N2.9 billion in Q1 2024 to N56.3 billion in Q2 2024, a 1,784 per cent spike.

Expert insights on digital vulnerabilities

Tayo Ogunlade, Chief Technology Officer at Onafriq, linked the rise in fraud to the rapid adoption of digital financial platforms and the associated security gaps. 

He noted that as organisations innovate to meet growing demands, they often compromise on security measures during the onboarding process.

“Security protocols are sometimes overlooked in the rush to innovate. This creates vulnerabilities that fraudsters exploit,” Ogunlade explained.

The EFCC reiterated its commitment to combating economic and financial crimes. Olukoyede urged fintech firms to implement more robust internal controls, enhance KYC procedures, and proactively collaborate with regulatory bodies to curb fraud.

EFCC blames frequent national grid collapses on corruption

Meanwhile, TheRadar earlier reported that the Executive Chairman of the Economic and Financial Crimes Commission (EFCC), Ola Olukoyede, attributed the frequent collapses of Nigeria's national grid to the corrupt practices of power sector contractors. 

Olukoyede highlighted the detrimental impact of financial crimes on national development, pointing out that the substandard materials used by corrupt contractors have been a significant factor in the persistent grid failures.