“Nigerian Banks and Fintech Collaborate Exclusively to Tackle Escalating Fraud, Awaiting Approval from CBN”

In response to the surging incidents of fraud resulting in substantial financial losses, Nigerian banks and fintech companies are engaged in discussions for a collaborative effort to combat fraud, as disclosed by a senior executive at a Nigerian bank to TechCabal. The proposed solution from these discussions is anticipated to be submitted to the Central Bank of Nigeria (CBN) for approval by the end of Q1 2024, according to the same source.

While two fintech founders acknowledged being aware of the ongoing conversations, they mentioned that there is still a need to find common ground between banks and fintechs.

The industry-wide collaboration aims to establish a solution that holds all financial institutions accountable for fraud, with a particular emphasis on Bureau de Change operators and banking agents—often utilized by fraudsters after successfully withdrawing stolen funds—according to an individual closely associated with these discussions.

Data from the Financial Institutions Training Centre (FITC) reveals that deposit banks incurred losses of ₦9.75 billion to fraud in Q2 2023, marking a staggering 276% increase compared to the same period in 2022. The overall losses from fraud incidents amounted to ₦5.79 billion in Q2 2023.

In response to the escalating fraud, the Central Bank of Nigeria has been proactive in seeking solutions. Since 2015, the regulator mandated all deposit money banks, mobile money operators, switches, and payment service providers to establish a fraud desk. The CBN has also imposed fines on banks and fintech companies found to be lax in Know Your Customer (KYC) rules, with licensed entities paying substantial fines since October 2023.

Despite these efforts, two banking executives expressed concerns that the CBN's actions have not resulted in policies fostering shared responsibility. Previous collaborative attempts between banks and fintech companies have faced challenges due to a low-trust environment and a preference for working in silos. Efforts by regulatory bodies such as CBN, CeBIH, NFIU, and NSA to bring industry operators together have not yielded implemented solutions.

In response to individual efforts, some financial institutions have taken unilateral actions to mitigate fraud risks. For instance, Fidelity reportedly blocked Opay and other neobanks last year to reduce exposure to fraud. Additionally, concerns have been raised about the difficulty in obtaining refunds when fraud involves fintech, contrasting with banks' tendency to refund to maintain public reputation.

To address these challenges, stakeholders recommend implementing a layered system. Older customers with established identities and transaction histories would receive instant value, while newer customers would experience delayed access to funds, allowing for timely fraud complaints and actions to be taken by the relevant parties or recipient banks.