Mobile fraud is estimated to cost Africans $4 billion every year as unbanked or underbanked people across Africa have begun to be included in the digital financial system, with over 180 million mobile money accounts in use across the continent in 2021.
The use of digital finance has demonstrably bolstered individuals’ resilience against shocks and increased access to channels for savings and credit. But by entering the digital financial system, individuals put themselves at risk of abuse and malicious exploitation.
In many countries, the costs of fraud in DFS are borne not just by financial institutions but also by individuals.
In Nigeria, where over 40 million people live in rural areas without basic banking services, POS merchants can be critical enablers to increase access to finance because they reach areas traditional banks often do not. But by using this POS terminal to participate in the digital economy, Aaliyah had put herself at risk. Her bank didn’t suffer the loss—she did. While the theft of a relatively small sum might seem inconsequential, for those living in poverty, this consequence of digital financial inclusion can be ruinous.
For instance, Aaliyah, a customer in Nigeria, used a poorly protected point-of-sale (POS) terminal, which led to a fraudulent deduction that depleted her savings account.
These harms affect all users, but they are especially devastating for vulnerable or marginalized groups. Although the fraction of losses borne by vulnerable individuals is small compared to institution-scale security breaches, the impact of losing a day’s or week’s wages is anything but small for an individual who lives day-to-day.
In Kenya, for example, a consumer protection study found that it was not uncommon for DFS fraud to be perceived as causing significant losses, frequently surpassing a day’s wages.
In Uganda, low-income women and those living in rural communities were found to be most impacted by risks arising from DFS.