Fraud In Mobile Financial Services: Safety Of Consumers, Providers And Systems

The rapid expansion of mobile financial services (MFS) has actually become a major driver in improving financial inclusion in developing economies.

This growth has provided access to affordable and reliable financial equipment to a large part of the population, which did not have access to traditional banking services earlier. Innovative mobile money platforms such as M-Pesa in Kenya and Tanzania have emerged as a major payment solution, which facilitates transactions of billions of dollars per year. However, there has also been a significant decline with this growth – mobile financial services have also become a favorite channel for fraud activities and various criminal actions.

In many major MFS markets, a variety of frauds have been reported regularly, including both consumer and service agents.

There is also a remarkable presence of fraudulent actions targeting agents themselves. In addition, internal frauds, such as deliberate abuse or operational errors, have suffered heavy financial losses and affected a large number of mobile money users in these areas.

In some of these markets, fraud levels reported by consumers and agents are relatively high, which can cause serious damage to individuals, agents and financial services providers (FSPs).

Conversely, other markets have less fraud. This variation shows that although fraud remains a serious issue, it is not a major challenge. Fear of fraud or real experience may prevent consumers with low -income mobile financial services or continue. These concerns can also interrupt the demand for other financial products that consumers consider more complex or risky.

If internal and external fraud is not adequately resolved, the benefits of financial inclusion and positive effects on consumers may be reduced. This can also have a negative impact on commercial operations of financial services providers. In addition, regulators may hesitate to support the continuous increase and diversification of MFS, fear that the internal control of these service providers may not be enough to detect and reduce fraud. Therefore, it is necessary for service providers to adopt a balanced approach that effectively manages the risk, supporting business objectives.

In 2015, CGAP conducted a thorough study on fraud in six major MFS markets: Ghana, Kenya, Pakistan, Rwanda, Tanzania and Uganda.

The study included analyzing fraud -related issues, reviewing survey data received from intermediate financial intelligent intelligence incision (FII) interviews with industry experts of fraud and risk management, and interacting with policy makers to understand major risks and their reactions. It included workshops and training sessions involving the best practices for detection and prevention of fraud as well as workshops and training sessions involving industry and government authorities-some of which were organized in collaboration with GSMA (Global Mobile Industry Association). It outlines the major findings and recommendations of summary studies, highlights the major weaknesses and offers strategies to manage risks to FSP and policy makers and reduce the damage caused to the businesses of consumers, agents and financial services providers.

Table of Contents

Mobile financial services risk factors and weaknesses of fraud

Before implementing effective solutions, it is important to understand the risk factors that make mobile money systems particularly sensitive to fraud and money refinement. Intensive evaluation of various types of fraud associated with these services is also necessary.

Major mobile money risk factors and related indicators include the following:

Product Risk: While the benefits of mobile money – ease of speed, convenience and access – make it a popular service in emerging markets, these features also make it an attractive goal for fraud and scams. The introduction of new MFS innovations such as bulk payment, insurance, mobile savings and loans, prepaid cards and border money transfer, can open new avenues for fraud activities.
Channel Risk: The widespread use of mobile phones and the increasing number of less experienced users entering the market increases the possibility of fraud.
Agent Risk: Providers with comprehensive agent networks, especially in remote areas, face difficulties in the infrastructure and installation of systems required for effective monitoring and enforcement of agent-related activities.
Customer and compliance risk: In countries with limited access to banking services, it is challenging to do the entire customer proper hard work (KYC) and monitor criminal behavior. Often, KYC procedures are performed by agents rather than branch employees, which can cause discrepancies or gaps in compliance.
System and delivery risk: System can delay delivery of downtime services and create opportunities for fraud. Inadequate system control and access restrictions can also lead to misuse of privileges and fraud activities. The absence of automated fraud identity systems can obstruct fraud and ability to identify terrorism-related activities, making it difficult to implement transactions boundaries and restrictions.
Regulatory, supervision and enforcement risk: In some markets, there is a lack of strong regulatory structure for mobile money, which may lead to unauthorized money transfer services and other irregular financial products. These irregular activities can further convenient fraud, money laundering and other illegal activities.

Emerging fraud trends and types

The above mentioned specific features and risk factor make the types of fraud prevalent in MFS different from traditional banking banking. Broadly, these categories include types of frauds that affect consumers, agents and providers.

Consumer affecting fraud

The types of fraud affecting the consumer differ from one market to another. For example, MFS providers in Rwanda and Uganda indicated that the top concerns related to fraud before consumers were as follows:

Theft of identity arising from fraud/offline SIM swap that transfers the mobile wallet account to the customer’s SIM to the SIM of the fraud, allowing the fraudulent consumer to get access to the mobile wallet and bank account of the consumer.
False propagation, phishing or social engineering scams, such as fraudsters take the form of providers and advise customers to win the prize in the promotion and send money to the fraud number to receive the award.
Network Down Time, which can create opportunities for fraud, mainly through offline SIM swap and over-the-counter (OTC) transaction, which can be verified and covered later only when the network connection is restored. (Even where it is not necessarily done to cheat customers, it also makes consumers more sensitive to the risk of fraud.)
Agents who cheat customers primarily through OTC transactions, for example, charging more for transactions, such as charging or taking fees for general deposits, which are usually free. Claims consumers claiming to be represented and then can motivate them to reveal their pin or other personal information about their mobile money accounts, which can be used to cheat the customer.
Unprocess recipients cause loss due to incorrect transfer that refuse to refund money.

FII surveys show that the most common concern of fraud is to ask for PIN by agents (although it is not necessary that the customer is done to cheat), followed by agents to charge more fees for transactions, such as direct deposits (direct deposits are illegal in many countries), or taking fees for general deposit, which is usually free. Interestingly, the shutdown of the network was the most concern and its average level in customers included in the sample was 50 percent.

Despite the relatively high proliferation of the fraud or other problems affecting the consumer, only 11 percent of the MFS customers who experience difficulties with mobile money reported this through formal complaint channels such as customer service centers. The main reason for this was the lack of information about the ineffective provider Sahara channel or the place of filing complaint. In some cases, OTC customers may be less likely to use formal complaint channels compared to wallet-based customers (Mezer and Garg 2015). This makes it an important challenge to ensure that they have complete knowledge of fraud levels in their network and action is taken to punish and stop the fraudsters.

Agent fraud

Agents and MFS providers are also sensitive to fraud. Network Accelerator Survey, agent of Helix Institute of Digital Finance, found that 53 percent and 42 percent mobile money agents in Uganda and Tanzania, respectively, had experienced fraud in last year (Khan and Bersudskaya 2014). The fraud and crime rates recorded by Uganda’s mobile money agents was the highest in the region (Bersudskaya and Kuizpers 2016). General fraud affecting agents mainly involves float loss in the account of the agent, which involves unauthorized use, compromise with PIN, and scams related to copying MNO staff by fraudsters, which gain unauthorized access to the float account of the agent. Customer can also commit fraud against agents – for example, withdrawal of extraction or fake currency. Surveys from Helix Institute indicate that fraud is a matter of primary concern for many agents.

Internal fraud among mobile money providers

Fraud within the providers is also a matter of concern. Many high profile cases of internal fraud have resulted in a lot of damage to MFS providers, while users’ accounts are at risk and financial integrity concerns for the system have increased. For example, MTN, the largest mobile money provider in Uganda, was estimated to have a loss of US $ 3.4 million (Moravazinski 2015) due to the internal fraud done by employees in 2011, while Tigo in Rwanda estimated 700,000 US dollars in 2014 (Mugisha 2014) due to a similar incident. Inadequate internal control (facilitating internal data hacking), insufficient audit procedures, poor corporate administration structures, staff fraud education and lack of whistle blowing mechanisms are among the leaders of internal fraud.

Mitting control for MFS fraud

The provider can take specific steps to reduce and monitor the possibility of some more common types of fraud and deal with their results. 10 include the following:

Comprehensive fraud management programs, which include cost -effective automatic transactions monitoring and restriction screening systems, so that other suspected activities including fraud and terrorist activity can be detected and prevented.
To ensure compliance from top to bottom with installed procedures and reduce the risk of internal and external fraud may be required to monitor and strengthen agent recruitment, training and management programs.
Product Risk Assessment that is included in each MFS risk management program to ensure that all the risks are identified before the launch of the new MFS products and adequately reduce with proper control (eg, KYC requirements, consumer sensoryization, systemic measures) that can create new risks. Risk typically involves identification theft and fishing scams that facilitate debt immunity and similar fraud.
Comprehensive fraud awareness and prevention programs that provide consumers, employees and agents to make fraud trends and prevention measures to sensitive. These may include training, media campaigns, and bulletins sent from time to time as email or text, systemic safety measures to prevent tampering with PINs, and fraud investigation and prosecution with law enforcement agencies.
Make consumers constantly sensitive about new types of frauds and scams coming in the market. It should be emphasized how consumers can protect their own, such as keeping their PIN safe and checking their remaining amount before sending money sent back.
Comprehensive agent fraud prevention measures include training, compliance monitoring, sensitive measures and systemic safety measures prohibiting the use of till.
Provision of effective grievance redressal channels with trained employees in dealing with fraud and other complaints and dedicated redressal channels for agents. Effective measures help users of new financial services that their money is safe, and if they face any problem they will be able to solve the problem (Mezer and Garg 2016).
Effective staff recruitment process that includes staff check.
Development of compliance culture, continuous training to employees, and implementation of disciplinary measures.
Implementation of technical controls that restrict the access rights of the user and apply dual controls.

In addition to managing fraud within your own network, MFS providers need to engage in coordinated industry action aimed at curbing fraud. Fraudsters often adopt the same strategy on mobile money networks, and consumers also exhibit equal weaknesses equally, irrespective of (and in many markets consumers usually use many mobile money providers). For example, market level industries union can monitor trends and promote fraudulent trends and prudent fraud management promoting the mutual exchange of information on best practices. It is working well in most African countries where there are strong bankers associations and in countries such as Uganda and Zimbabwe where the Mobile Money Agents Association. However, not all countries have Mobile Money Agents Association, and where MFS is offered through banks, banks cannot prioritize MFS issues.

Regulatory inspection

The absence of proper regulatory arrangements and supervisory inspection can create opportunities for fraud. Lack of competent regulation can also disrupt innovation, which means that the provider will not be in a position to introduce new products without a proper regulatory structure. Due to poor trained and equipped law enforcement agencies, these regulatory deficiencies increase even further, which delays investigation and solution of fraud cases.

In these markets, regulators should implement appropriate regulatory reforms including the following:

Appropriate laws that make mitigation control mandatory and ensure its proper implementation by providers. Recently, the introduction of mobile money and electronic money regulations in many major mobile money markets like Eastern and West Africa and South Asia has helped to formalize the region and the regulators have been available to the regulators to implement and maintain strong fraud monitoring and risk reduction measures.
Maintaining constant contact with regulators by consumer interest groups and financial inclusion agencies, so that proper support can be provided towards obtaining legislative reforms where appropriate. This is particularly important in countries where competent field-specific rules have not yet been implemented.
References that provide legislative structure to authorize and oversee all MFS providers; Compulsory consumer consumer provisions to implement protection measures to prevent fraud; And minimize other challenges experienced by consumers using MFS, such as insufficient communication and consumer Sahara channel and inappropriate provider practices. An example of this is Ghana, where the electronic payment rules launched in 2015 have clear provisions in this regard (Bank of Ghana 2015, Section 26–28).
Cross -border coordination on fraud mitigation in areas where there are many markets with widespread use of mobile money. An example of this is an attempt to develop a general SIM card registration structure for a clear purpose of limiting mobile money fraud by the East African community (Business Daily 2015).

Conclusion

Mobile money space is constantly developing. As more players enter the MFS sector and new products will be introduced, providers will have to work together, and may require appropriate regulation. Continuous efforts to document and standardize effective fraud and risk management approaches can accelerate the development of coherent and effective approaches in all MFS globally.

This brief description describes how the fraud is affecting mobile money providers, agents and consumers, as well as highlighting the risk of fraud in mobile money and related services and efforts to reduce the weaknesses. Although it is not possible to completely remove fraud from any service – including mobile money, examples here show that fraud in many major markets for consumers and agents is a major issue, and provider can take simple steps to reduce their vulnerability towards general fraud types.

These steps include improving internal control, building agent capacity for the safety of self and their customers, and reconsideration of procedures such as account access and SIM swaps to prevent general fraud schemes, where necessary. With the introduction of new products and distribution channels, types of fraud will develop, which means that monitoring mechanisms such as compliance investigation and customer response channels will remain the major elements for effective fraud and risk mitigation. The providers should share successful experience with their peers, so that all providers can adopt good practices and take collective action where necessary. There is already a dialogue between domestic bodies like Mobile Money Association. The provider community will benefit from sharing the best practices and experiences.

Governments, donors and development partners should continue supporting law enforcement agencies such as FSP and others, such as FSP and others, with capacity building. Although the MFS industry has developed a variety of reactions to fraud, many policy makers are left behind without adequate regulation or risk assessment tools for MFS. Moving forward, the participation of policy makers in industry efforts to reduce fraud should be increased and where possible, good methods in standard requirements for MFS providers should be formalized. Better confidence and use, product diversification, and low losses for consumers, agents and providers, are important benefits that support MFS, Consumer Welfare and Provider profitability.

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