Digital fraud cost South African consumers more than R740-million in 2022 alone, highlighting an urgent need for stronger digital safety measures to ensure true financial inclusion. And, as digital payments grow in popularity, so does the threat of fraud.
The Southern African Fraud Prevention Service (SAFPS) says that fraud increased by 600% between 2018 and 2022 – and that despite the increased focus on digital payment adoption, fraud prevention solutions in Africa have struggled to keep pace.
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.
A significant amount of fraud is preventable and consumers increasingly expect banks and financial institutions to do more to protect them.
In South Africa, the most concerning fraud types include 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 tackle this growing problem, banks and financial institutions must adopt advanced technologies to combat evolving fraud activities. This includes monitoring multi-channel transactional data to detect anomalies and quickly address payments that deviate from usual patterns.
According to the South African Reserve Bank’s inaugural payment study, 36% of the population are considered “digital rejectors” – those who refuse to use digital platforms for transacting or managing 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.
“To address fraud effectively for our merchants – while minimising friction for customers – we leverage data directly from Visa and Mastercard,” says Stefan Griesel, chief product officer of Precium. “This allows us to screen billions of transactions and enhance fraud detection through data-rich machine learning models.
“There is a fine line to walk between proactively protecting consumers and merchants from potential fraud and negatively impacting payment success and conversion rates,” he adds. “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,” Griesel says. “A first transaction may require 3D Secure (a security measure for online payments), but once the card is tokenised, a customer can benefit from one-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.”
Griesel says the ability of 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,” he says. “It is no longer enough to modernise payment methods – the same level of innovation must now be applied to fraud prevention.”