Fraud recovery is an important part of the financial services sector, but sometimes, the funds recovered by fintechs and banks can also be lost to fraudsters.
“Eneke the bird says that since men have learned to shoot without missing, he has learned to fly without perching,” Nigerian literary giant Chinua Achebe writes in “Things Fall Apart.”
He might have as well been talking about how financial institutions must adapt as bad actors continue to follow the money. In the first quarter of 2024, financial institutions reported 11,472 fraud cases in Nigeria.
When fraud occurs, banks and fintechs help their customers recover funds by working with the police and the courts. Court orders help banks and fintechs to compel the receiving banks to freeze accounts or reverse questionable transactions.
Commercial banks receive those refunds through bank drafts, while fintechs use partner banks. The funds are held in fraud recovery accounts before they are returned to customers. However, these recovery accounts can also be hacked.
In May 2023, one African fintech lost ₦146,188,208 ($317,200) it helped customers recover from fraudsters.
The fintech, which held the recovered funds with a tier-2 Nigerian commercial bank, said the account was “fraudulently hacked into,” according to court documents. The stolen funds were sent to accounts in 26 banks and fintechs, a standard method used by fraudsters to widen the trail and complicate recovery efforts.
“The petitioner as (a) fraud recovery agent is helpless as these monies are some of the monies recovered on behalf of clients, which they supposed to be remitted by the petitioner to the owners,” said an excerpt of a court document seen by TechCabal.
While the fintech has begun the recovery process, customers are growing impatient. “The [fintech’s] clients are disturbing the petitioner to collect their money recovered by the petitioner on their behalf and the petitioner cannot explain to their clients what exactly happened to their money.”
The fintech has asked the court to compel the 26 banks and fintechs to share their customers’ KYC records and block their accounts from making transactions, highlighting the importance of KYC records. The fintech has also asked the court to issue arrest warrants for three suspected perpetrators.
