Because Africa’s technology sector is advancing, more people now rely on digital tools to manage their finances, communicate with others, and take care of their daily needs. But with this increased dependence on digital services comes a growing threat: digital fraud.

Digital fraud is rising in Africa, and the numbers are staggering. According to a report by Smile Identity, a Pan-African digital ID verification firm, digital fraud in Africa reached a new high in 2022, with rates up 28%. The data, based on 50 million KYC checks across African countries and businesses, proves the rise of fraud.

Smile Identity’s report is not in isolation. Another survey from last year showed that nearly half of South Africa’s insurance companies could not cope with rising cases of email phishing, while banks struggled to combat spoofing attacks. South Africa alone is losing $127 million a year to cybercrime. According to Interpol’s Africa Cyberthreat Assessment Report, over 90% of businesses on the continent are vulnerable to digital fraud.

Even though fraud rates decreased slightly in the latter half of 2022, scammers are still finding ways to exploit changes in consumer behaviour during the pandemic, such as increased reliance on passwords and OTPs, and more bank-to-mobile transactions.

According to the report, private Telegram channels, WhatsApp groups and hacker websites are spreading new tactics for scammers to make more money. The pandemic has also led to a surge in fraud, as many African workers moved to remote work setups. The study found that many companies need a better understanding of remote user verification. But, more African firms are using face recognition tech and biometrics to quickly identify and onboard people online.

The report believes that local ID databases are the best source of truth for KYC, but frequent downtime is a major issue. Document verification is suggested as a reliable backup to maintain services and expand to multiple international markets. The company sees Africa’s drive towards digital identity as key to unlocking the continent’s economic potential and creating growth and prosperity. For example, 94 million Nigerians have already registered their biometrics as part of the National Identification Number (NIN). Other African countries, such as Kenya and Uganda, are also implementing similar digital ID programs.

Smile Identity’s research shows that biometric KYC checks are more effective at identifying fraud than text-only KYC, which misses 50% of fraud incidents. The company believes that combining biometrics with ID verification is the best approach for preventing ID fraud. Their ID verification system for KYC has helped crypto platforms experience 46% less fraud than other industries.

The rise of the Buy Now Pay Later (BNPL) sector has also opened up new opportunities for fraud. Bad actors can exploit credit scores and commit account takeovers without transacting. The major types of fraud identified in the study include synthetic fraud, duplicate accounts, selfie “spoofs”, stolen ID information and more. Synthetic fraud involves using computer algorithms to create fake face images that resemble real individuals and then combining this fake biometric information with legitimate textual KYC information to commit fraud.

Africa is making significant moves to secure people from digital fraud. For instance, last year, the United Nations Economic Commission for Africa (UNECA) partnered with the Togolese government to build Africa’s first regional cybersecurity research centre. However, there is still plenty of work to do.

Elsewhere on Ventures

Triangle arrow