Kenya's financial services firms prime target for fraudsters

Friday June 18 2021

Identity theft has become dominant in the financial and telecommunication sectors. PHOTO | FILE | NMG


Kenya’s financial services sector players top the global list of institutions that have become a prime target of tech-savvy fraudsters preying on unsuspecting customers to swindle them of life savings stored in bank accounts, according to a new survey.

This development is likely to cause jitters to depositors whose confidence has been heavily shaken by collapse of three banks in quick succession and an increasing number of lenders violating statutory guidelines on liquidity and capital adequacy.

Preliminary findings of a survey by Credit Reporting agency TransUnion Africa shows that the identity details that people fill in visitors books while going to places such as offices, schools, companies, buildings and various organisations have become a soft target for conmen out to steal your cash.

The survey by TransUnion’s digital fraud solution dubbed TrueValidate shows that Kenyan banks are losing over Ksh13 billion ($121.49 million) every year to fraudsters through identity theft and loan stacking.

Identity theft is when fraudsters use stolen identities to wipe out customers’ bank accounts or mobile wallet accounts while loan stacking is when fraudsters take multiple loans using stolen identities.

According to the survey, identity theft has become dominant in the financial and telecommunication sectors.


Most common theft

“It is mainly where someone steals your identity card for use to either open an account or access your account and take a loan against it. We see a lot of that happening, the common one being of taking Mshwari or Tala loans using stolen ID card information,” Billy Owino, the firm’s Chief Executive told The EastAfrican last week.

“We started seeing identity theft in 2019 when people approached customer service saying they have been denied a loan somewhere because the bank says they have a default on a loan they knew nothing about. We began to realise there is a lot of identity theft happening and being perpetuated especially in the mobile lending space where somebody steals the identity just to open an account in one of the financial technology (fintech)’s platforms.”

TrueValidate’s advanced insights and global network of fraud reporting helps businesses discover anomalies, assess risk and confidently identify good consumers.

“There are a lot of places where you go and get the visitors book that you sign and put your personal details like identity card number, and your phone number. When those details get into the hands of the fraudsters because we never know how these books are handled, it is very easy for them (fraudsters) to either to do a SIM swap or create another new account,” said Mr. Owino

According to the survey Kenya’s financial services sector recorded the highest growth in the proportion of suspected fraud by 150.72 percent during the four months period to April 30 this year (2021) with ‘True Identity Theft,’ being the dominant method that fraudsters are using to make their kill.

Sector by sector

It was followed by Gambling (48.87 percent) with the top type of fraud being ‘Policy/License Agreement Violations’ and telecommunications (36.77 percent) with the top type of fraud being ‘True Identity Theft.’

Travel and leisure sector recorded 12.58 percent growth in suspected fraud with credit card fraud being dominant while Communities recorded 10.54 percent increase in suspected fraud with top type fraud being ‘profile misrepresentation’.

Retail recorded a 13.85 percent decline in the proportion of suspected fraud though ‘Promotional Abuse’ is the key form of fraud in this sector.

In 2019 a survey by the Financial Sector Deepening Trust (FSD) Kenya showed that Mobile money users had substantially more challenges than users of regulated financial services like banks and mobile banks, with nearly 30 percent (over 5 million users) experiencing loss of money or fraud, mostly through hoax SMSs or phone calls.

On the other hand, three percent of bank users (roughly 220,000 consumers) also reported losing money from their accounts.

“Digitisation has changed the way people save, borrow and transact. While transactions are still dominated by cash possibly because of cost — there is evidence of increasing levels of digitisation,” according to the survey dubbed ‘Inclusive Finance’.

Trillion-dollar industry

“Savings are now formalising through mobile banking and the digital wallet, which provides a safe store of value easily accessible in times of need.”

In 2019, 54 percent of Kenyans were saving on their mobile money wallets, up from 43 percent in 2016, with the population using digital app loans rising from just over 0.6 percent to seven percent, with those using mobile banking loans increasing from six percent to nine percent.

A report by global consultancy firm McKinsey & Company shows that with the advent of digitisation and automation of financial systems, financial crimes have become more electronically sophisticated and impersonal.

In 2018, the World Economic Forum noted that fraud and financial crime was a trillion-dollar industry, reporting that private companies spent approximately $8.2 billion on anti–money laundering (AML) controls alone in 2017.