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Fraud in Mobile Financial Services - MicroSave

Fraud IN Mobile Financial Services 1. Fraud in Mobile Financial Services Joseck Luminzu Mudiri A MicroSave Publication Fraud IN Mobile Financial Services . Table of Contents BACKGROUND AND CONTEXT .. 1. KEY ENABLERS OF Fraud .. 2. Mobile Financial Services DEPLOYMENT LIFECYCLE .. 3. CATEGORIES OF Fraud IN Mobile Financial Services .. 8. IMPACT OF Fraud .. 13. CONCLUSION .. 15. 19. APPENDIX 1: CONSUMER DRIVEN Fraud .. 19. APPENDIX 2: AGENT DRIVEN Fraud .. 26. APPENDIX 3: BUSINESS PARTNER DRIVEN Fraud .. 33.

FRAUD IN MOBILE FINANCIAL SERVICES 4 The table below lists prevalent types of fraud and the probability or frequency of its occurrence at different stages of the deployment cycle.

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Transcription of Fraud in Mobile Financial Services - MicroSave

1 Fraud IN Mobile Financial Services 1. Fraud in Mobile Financial Services Joseck Luminzu Mudiri A MicroSave Publication Fraud IN Mobile Financial Services . Table of Contents BACKGROUND AND CONTEXT .. 1. KEY ENABLERS OF Fraud .. 2. Mobile Financial Services DEPLOYMENT LIFECYCLE .. 3. CATEGORIES OF Fraud IN Mobile Financial Services .. 8. IMPACT OF Fraud .. 13. CONCLUSION .. 15. 19. APPENDIX 1: CONSUMER DRIVEN Fraud .. 19. APPENDIX 2: AGENT DRIVEN Fraud .. 26. APPENDIX 3: BUSINESS PARTNER DRIVEN Fraud .. 33.

2 APPENDIX 4: SYSTEM ADMINISTRATION AND MANAGEMENT .. 35. APPENDIX 5: Mobile OPERATOR DRIVEN Fraud .. 38. APPENDIX 6: DEFINITIONS .. 42. END NOTES .. 44. Fraud IN Mobile Financial Services 1. BACKGROUND AND CONTEXT. For many years, Financial inclusion was a The study will help stakeholders major challenge globally, due to the high costs understand the kind of interventions that involved. To offer Financial Services , premises are necessary to address these risks. had to be constructed, new employees recruited and significant capital investments The study should help lower the cost of made.

3 Financial institutions concentrated on intervention by enabling new deployments the high value consumers that yielded larger to learn from older, experienced operators. revenues and largely excluded the majority of It is noteworthy that early adopters of the population. Mobile Financial Services learnt from Financial Services , payments, and The introduction of Mobile telecommunications industries allowing telecommunications and later, the adoption of them to mitigate early risks. Mobile phones to provide Financial Services changed the dynamics of the industry, bringing Understanding Fraud enables better Financial Services closer to the public through knowledge of investment required in existing merchant infrastructure within local Mobile Financial Services .

4 Investment costs communities. The success of M-PESA since necessarily include capital investment, its launch in Kenya in 2007 has increased the infrastructure, platform development, appetite for Mobile Financial service human resources and capacity building to deployments especially in developing respond to Fraud . These costs will be countries. Financial institutions such as banks incurred by various stakeholders including and microfinance institutions are also regulators, operators, agents and security investing in the provision of Mobile Financial agencies among others.

5 Services . Definition of Fraud in the context of Mobile The implementation of Mobile Financial Financial Services Services , like other Financial Services , faces risks and challenges. This paper addresses Fraud is commonly understood as dishonesty Fraud as a challenge in the provision of Mobile calculated for advantage a deception Financial Services . deliberately practiced in order to secure unfair or unlawful gain. Fraud in the context of The Importance of Studying Fraud in Mobile money is the intentional and deliberate Mobile Financial Services action undertaken by players in the Mobile Financial Services ecosystem aimed at deriving The study of Fraud helps Mobile Financial gain (in cash or e-money), and/or denying service providers build a Fraud lifecycle other players revenue and/or damaging the that is closely aligned to the product reputation of the other stakeholders.

6 Lifecycle. Different types of Fraud will occur at different stages of the product. Fraud IN Mobile Financial Services 2. KEY ENABLERS OF Fraud . Key Fraud enablers in Mobile Financial Services Absence of communication may increase are: Fraud occurrence, as new victims will not be aware of the risks and mitigants. Weak regulation The inability of regulators to monitor the Mobile money High cost of transactions When ecosystem, to set guidelines for different transaction costs are high, customers may stakeholders increases the likelihood of try to reduce their costs by abusing the Fraud in any system.

7 Regulation does not system. necessarily mean statutory regulation; it may mean oversight by Financial regulators. Pricing policies Pricing and commission In a number of Mobile Financial service paid to different players will contribute to jurisdictions, regulation is done by the level of Fraud in the system. Percentage oversight with regulators exercising best pricing has a different impact from practice in managing Services . staggered pricing and commission. In some cases, the operator may opt to charge for Maturity of the Mobile money Services - Services at a single point and therefore open Different types of Fraud occur at different it up to abuse at points where the service is stages of the deployment.

8 For example, free. Fraud on B2C and C2B transactions will likely occur in more mature markets, while Cultural issues Fraud in certain markets fake registrations tend to be prevalent in will be higher because the society is new deployments. generally lenient to fraudsters. Leniency may be caused by weak legal structures, or Processes Weak or non-standardised a weak political system. processes open and enhance the possibilities for Fraud . Fraud can be Seasonality Fraud tends to increase reduced and limited by ensuring that there during certain seasons and activities.

9 As the are checks and balances within systems and festive season commences the Fraud levels structures to limit its occurrence. also increase because there are more promotions, and everyone is trying their Compliance monitoring Processes alone best to attract funds. are, of course, not enough to reduce Fraud they will only be effective if they are Fraud in Mobile Financial Services mirrors properly monitored. Compliance Fraud in other Financial Services such as monitoring will take the form of scheduled banking, cards, and ATMs.

10 It is not unique to audits, independent and mystery shopping, Mobile and therefore lessons learnt in other third party reviews, peer reviews etc. areas can be replicated in the context of Mobile money. Occurrence of Fraud depends on the Consumer awareness and poor stage of the deployment of Financial Services . communication within the system - Therefore, the level of incidence will change Communication enables different users to as the Mobile Financial service evolves. know Fraud trends, and mitigants. Fraud IN Mobile Financial Services 3.


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