The Shocking Truth About Digital Payment Frauds in an Evolving Economy

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Ethiopia’s banking industry grows with mobile banking and digital payments but faces fraud risks. Customers lose 2 billion birrs in four years.

Ethiopia's banking industry has been expanding steadily. Despite high inflation and low-interest rates, citizens are increasingly storing their money in bank accounts. The introduction of mobile banking and other digital payment systems has eased transactions, and large amounts of money are being exchanged on digital platforms. Although the digitization of the economy is in its initial stages, it has not been immune to fraudulent activities. A study conducted by Ethiopia’s Ministry of Justice indicated a staggering two billion birr was lost due to fraud in the past four years.

Fraud is not new in Ethiopia. Counterfeit documents and cheques have been used to defraud people. before. The fact that these new frauds are taking place in a nation that is still adjusting to regulations and digital banking systems makes customers more vulnerable.

What are digital payment frauds?

Digital payment fraud is a cyber crime that presents fraudulent transactions as authentic. Scammers use different tactics to steal money or personal data from unsuspecting individuals. Text messages and phone calls are the most typical methods of scamming in Ethiopia. Individuals posing as bank workers either call or message unaware customers with attention-grabbing messages like “you have won a lottery!” or “you need to update your bank information to get this kind of benefit.”  

This tactic is only the tip of the iceberg. In countries where there are more sophisticated digital financing systems, fraud is more advanced. Activities like identity and credit card theft have left many bankrupt. Due to the incomplete integration of digital technologies into Ethiopia's economy, this type of fraud is not common. However, given the rapid spread, frauds posit a great risk to Ethiopia’s financial system. 

The dangers of fraud

The primary victims of digital payment frauds are unsuspecting individuals with limited savings. Scammers often use people’s desperation to swindle them. The justice system won’t be much of a help either as it is convoluted and filled with bureaucracy. Scammed people often get frustrated and stop seeking justice. This in turn emboldens scammers to commit more fraud, leading to a financial environment where crime thrives. 

Apart from individual harm, banks are also on the losing side. Their profits are affected as their customers keep losing money. Large banks and industry giants may be able to instill preventative measures that come at an additional operational cost, but that’s not the case for smaller banks. With limited resources, they may not be able to maintain costs for additional security. As a result, they will eventually be flushed out of the financial sector. In addition, fraud affects banks’ reputations and erodes the trust people have in financial institutions, leading them to conduct transactions outside of the banking system. This, in turn, affects the country as its cash supply dwindles, slowing down economic growth.

How can we prevent fraud?

Preventing and combating fraud is done along two lines: individually and institutionally. As an individual, here are some measures you can take to prevent fraud:

  • Maintain Skepticism: it is always a good idea to have a degree of doubt whenever you receive any kind of message from your bank. Make sure to double-check the source of the message and ensure it's legitimate before you take any action. 
  • Avoid disclosing personal information: Banks rarely ask for personal information; instead, they notify you to log into your account. If you are asked to send your private information, it is most likely a scam. 
  • Report any suspicious activity: notifying your bank when you notice fraudulent activity is very helpful as it will assist the banks in taking legal measures against fraudsters. 
  • Update your information often: regularly changing sensitive information like passwords will make them extremely hard to come by. 

On the institutional level, it is up to the banks to maintain their customers’ trust. They must do everything possible to prevent scams, and should their customers fall victim to one, they must assist them in getting justice. The government should also have a robust legal system that can take exemplary measures against fraudsters. It should also invest in improving the country's security infrastructure. Institutions like INSA (Information Network Security Agency) and NISS (National Intelligence and Security Service) should collaborate and take more preventative measures in the fight against fraud. 

Digital payment fraud poses a serious threat to Ethiopia’s digital transformation. If not addressed, they run the risk of sabotaging economic growth. We should always be on guard when it comes to our finances, and we should offer sympathy to those who have fallen victim to fraud. Completely getting rid of scams may be impossible, but through collaborative effort, we can create a financial environment where it is difficult for crime to prosper.

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