The innovation has helped businesses and even countries participate in global trade in real-time and repatriate remittances that took months just a few years ago.
But like every innovation, no matter the good intent, it always falls prey to the tactics of those who have dedicated their lives to finding loopholes in the system and dubiously benefitting from it.
For fintech, and the same for the entire banking sector, the major obstacle to its development is its susceptibility to fraud.
In 2020, during the COVID epidemic, the United States government launched the direct COVID relief payments to help Americans hit by the global lockdown and recession. This system saw the United States giving $1,200 per adult for eligible individuals and $500 per qualifying child under age 17 to buy groceries and essential things of life.
But this good initiative was quickly undermined by scam artists who compromised several government databases, including those of the IRS, stole the identities of eligible citizens and defrauded the United States Government in an operation with stolen funds valued between $87 billion to $400 billion according to the Secret Service.
If this could happen to the United States Government with its technological infrastructure, it is obvious no company or organisation is truly exempted from fraud attacks.
Whether they were done on a large scale by syndicates who specialise in identity theft or the collaboration of some account holders in “gaming” the system by compromising their access details via phishing emails, the reality is that global attention is required to stop this spread.
In 2021, one of the leading payment companies, PayPal, disclosed that it had identified 4.5 million accounts illegally created.
Every year, PayPal records an average of $1 billion in losses to fraud alone, according to Intel’s report on ‘Financial Services Fraud Detection and Prevention, PayPal as a case study.’
Recently, Tech Cabal ran a story on Flutterwave’s fund recovery process against some individuals and companies who tried to “game” the system but were caught in the act.
Unlike the banking industry, where banks are custodians of funds, fintechs like Flutterwave, PayStack, Interswitch, Remita are merely processing channels that take your money and give it to whoever you want it to be given to.
Payment infrastructures of these processors, from my experience, are built in such a way that fraud attempts are automated, usually through a security protocol pinpointing the originating account. The system then blocks all transactions from leaving.
However, because a crime has been attempted, it is customary by Nigerian law to get authorisation from the court, which Flutterwave has done, according to the Tech Cabal’s report, to unblock such an account before making the money available to the rightful owners.
This is a bureaucratic bottleneck put in place by regulators to prevent and discourage fraud and its attempts.
However, for an innovation with a selling point of speed, occurrences like this affect the much-needed adoption by the people.
In battling the beast of fraud in global fintechs, a multi-dimensional approach must be enacted to curb this menace.
The global fintechs must come together as a team and create a system that not only identifies these attempts but also ensures that perpetrators find it difficult to move such money around.
A system that alerts not just internal security measures but the entire centralised fintechs community and flags such individuals. In fact, a cross-border ban on any account found wanting from the global fintech sector will go a long way to greatly mitigate such related fraud.
Omololu Oduyoye is a fellow of the Institute of Chartered Accountants of Nigeria, former Financial Controller with African Capital Alliance and former audit consultant with KPMG._
