Banks up their systems against fraudsters

By Fredrick Obura

Fraud has undermined earnings and efforts in corporations worldwide.

The vice is so pervasive that one could safely bet that every organisation has fallen victim at one point or another.

The 2008 Report issued by the Association of Certified Fraud Examiners (ACFE) estimates that US firms lose seven per cent of their annual revenues to fraud, an estimate of $994 billion.

Common types of fraud range from bank, securities, mortgage and health insurance fraud.

The Executive Director Kenya Bankers Association (KBA) John Wanyela says fraudsters can cause injury by withdrawing cash from bank accounts using assumed identity documents that would pass as genuine.

Bank officials admit that incidents of fraud are on the increase. Mr Wanyela says almost every other day, cases of fraudsters trying to steal from automated teller machines (ATMs), forging signatures or altering information on a cheque, openings false accounts or devising new schemes to defraud banks or their customers are reported.

Online banking

And the security sheath is thinning everyday with more and more banks adopting online banking platforms.

According to experts, online transactions present a conducive-environment to fraudsters to thrive.

KENIC Chairman Sammy Burucharu says as financial institutions roll out online and mobile banking products, only a username and password stand between customers’ money and fraudsters.

Financial institutions are now seeking help from forensic security experts to detect, investigate and minimise fraud.

The nature of fraud in banks keeps evolving, but the vice is made worse by the country’s poor registration regime.

Wanyela cites the ease with which national identity cards (ID) are forged and subsequently used to open bank accounts as the main entry point of fraudsters into the banking system.

Although commercial banks have internal controls to safeguard against fraud, they are still ill equipped when it comes to differentiating between a forged and genuine ID.

Central Bank of Kenya (CBK) requires that a bank undertake a Know-Your-Customer (KYC) analysis on each of its customers. This requirement obligates each financial institution carry out background checks about their clients against the particulars presented.

However, the ease with ID cards are forged limits the ability of KYC policy to lock out criminals from the banking system.

"We need something that cannot be easily forged, may be something like a fingerprint-based integrated ID system, which also contains other details such as birth certificate, passport, land ownership, residence and workplace," says Wanyela.

"Although we have not recorded any major scam related to online transactions locally, we have to be alert," he says.

"Faster and affordable Internet exposes the banking system to both external and internal attacks," said Burucharu.

"We are also witnessing developments in online payment gateways, a sign that electronic cards will dominate in cash transaction, and predispose customers and banks to fraud."

The fear of losing money to fraudsters is now stirring the need to adopt various innovations among local banks. Last month, Equity Bank and Kenya Commercial Bank (KCB) enhanced security against fraudsters.

To fight fraud, KCB is installing security systems with human intelligence features.

Through an intelligent quick serve Automated Teller Machine, KCB aims to reduce cases of fake notes deposits through ATM outlets. The machine accepts currency notes of any denomination, either singularly or in multiples as well as bunches of notes of up to 200.

It verifies the value of the cash being deposited, validates the currency, rejecting any counterfeit notes or old and unusable notes during the transaction.

Upon customer confirmation of the value of the deposit, the ATM deposits the money directly into the customer’s account and prints a receipt as confirmation of the transaction.

KCB Group Chief Executive Martin Oduor says the bank will install 12 such intelligent ATMs this year to cut costs and guarantee safety.

"Systems security is a big issue today. There is an urgent need by financial institutions to install new security standards to protect customers and banks from fraudsters," says Equity Bank CEO James Mwangi.

Detecting cyber crime

KENIC, the registrar of Kenya’s top-level domain (dot.ke) plans a weeklong workshop on fraud. The workshop, organised in conjunction with ICANN will devise ways of detecting cyber-based criminal activities.

Speaking during the unveiling of the Equity’s Europay Mastercard Visa (EMV), Mwangi said growing technology boosts banks but also exposes their systems to cyber scams.

The EMV card contains a small computer chip, which not only gives them greater memory capacity, but also improves security for consumers by making it near impossible for fraudsters to decode or tamper with.

The chip securely stores data that uniquely identifies the card and the cardholder, putting an end to misuse through loss, stolen and counterfeit cards.

The implication is that the card issuers can provide assurance to both cardholders and retailers that their transactions are legitimate and cannot be counterfeited.

With the installation of the new technology, Equity Bank will process and manage visa cards with the EMV chip at all Equity Bank outlets and points of ales seamlessly by accepting card and pin, without the need for customers signing on receipt, as it is the case at the moment.

Equity Bank point-of-sale terminals are available in retail outlets including supermarkets, fuel stations, hotels and restaurants.