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Fraud evolves as quickly as payments do. According to the Southern African Fraud Prevention Service (SAFPS), there was a 600% increase in incidents of fraud from 2018–2022. Digital payments in particular have come to represent the highest proportion of financial loss attributed to fraud – consumers lost over R740 million in 2022.
But with increasing focus on adoption of digital payments and the introduction of new ways to pay, the solutions promoting digital safety in Africa have not kept pace.
Fraud is on the rise globally
Growing internet penetration, popularisation of digital payment methods, and digital identities have created opportunity and risk in equal measure. Utilising stolen identity and financial information, cybercrime has become vastly more sophisticated in recent years.
According to a recent Digital Identity in Africa report, 80% of ID fraud attacks are concentrated on national identity documents, making them the most exploited ID type.
These trends are set to continue as more financial services become accessible online. Financial literacy and safety campaigns are one way that providers can aid consumers in fighting fraud. But a high volume of fraud is preventable, and there will be growing expectation that banks and financial institutions do more to protect their customers.
Fraud in Africa looks very different than it does elsewhere
The proliferation of new payment methods such as PayShap, mobile money, and e-wallets has opened up new avenues for large-scale fraud, often facilitated by instant settlements.
But incumbent fraud prevention solutions built for Western markets are not effectively addressing fraud in emerging markets because they are premised on different customer profiles, payment methods and systems. To close the gap, fraud prevention companies are developing deep insight into the specific nature of fraud in each market. This not only includes preferred payment methods, but consumers’ behaviour and financial education, and the ability for cybercriminals to exploit vulnerabilities.
In South Africa, the types of fraud causing the most concern are authorised push payment (APP) fraud and Vishing (52%), Phishing/SMS-ing (48%), and SIM swap fraud (35%). These social engineering scams are more difficult to combat because the victim plays a role in authorising the transfer of funds. Payment providers in the US and UK are now mandated to reimburse customers who are victims of APP fraud though this is not yet the case in South Africa.
To meaningfully tackle this growing problem, banks and financial institutions need to adopt solutions and technologies that address evolving fraud activities. This starts with advanced monitoring of local multi-channel transactional data to keep track of money movement from sender to receiver, and taking appropriate action when a payment falls outside of a pattern. This approach goes beyond the current authentication systems which are designed to verify the identity of the sender.
True financial inclusion is critically dependent on digital safety
According to the South African Reserve Bank’s inaugural payment study, 36% of the population are considered “digital rejectors” (those that have no interest in or outright reject technology or digital platforms to transact or manage finances). Their reasons include a lack of knowledge (or unwillingness to find out), security concerns, a lack of control, and fear of new methods.
At the same time, Transunion’s Omnichannel Fraud Report says that 69% of South African consumers reported being targeted with online, email, phone call or text messaging fraud attempts in 2023.
Without digital safety, a third of South Africans will continue to reject digital payments. The two go hand-in-hand. To responsibly accelerate financial inclusion, banks and businesses will need to adapt to fight fraud as it becomes increasingly personalised to its location and victim.
“In order to address fraud for our merchants in the most effective manner, without creating friction in the customer journey, we leverage data directly from Visa and Mastercard to refine our monitoring models. This means screening billions of transactions and incorporating data-rich machine learning to enhance insights over time,” says Stefan Griesel, Chief Product Officer of Precium.
“There is a fine line to walk between proactively protecting consumers and merchants from potential fraud, and negatively impacting payment success and conversion rates. While our platform proactively monitors for fraudulent activity and transaction anomalies, we also prioritise solutions that allow for the highest possible success rate.
For example, we can selectively impose authentication options. For a first transaction, 3D Secure (a security measure for online payments) may be imposed, but once the card is tokenized, a customer can benefit from 1-click checkout. If we detect unusual shopping behaviour – say, an unusual basket size – we could impose 3D Secure for that particular transaction. This way, we can protect honest customers from fraud while optimising the checkout journey.”
The ability for banks and businesses to fight fraud meaningfully will be a deciding factor in realising the vision for a financially inclusive society. Coming years will likely see a surge in fraud prevention solutions, built for the emerging market, and the cultivation of a new category of startup: FraudTech.
“This is a call-to-action for all online businesses. It is no longer enough to modernise the methods customers can use to pay, new thinking and technology must now be applied to the modernisation of fraud prevention,” ends Griesel.
Precium is the first African payment platform purpose-built for enterprise. The company helps businesses optimise payment performance, automate financial operations, and craft extraordinary customer experiences through its modular payment platform.
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