Bank fraud: E-channels the unnecessary evil

By Moses Kaketo

Only one of Uganda's more than 20 commercial banking institutions is thought to have almost 0% fraud. This is partially due to their decision to remain traditional in their operations—with only one branch.

However, this approach has drawbacks of its own, such as limited operations, no agents, no ATMs, and limited reach [branch network]. Otherwise, the twenty-first century is upon us. Instead of moving into the bank, we decided to move with it. You have to scale up to stay competitive.

However, there are costs associated with scaling up, including significant operating costs. The expense of providing customer service is constantly rising. In Uganda, for example, the monthly cost of running a single branch is over Ugx. 30 million, whereas the cost of installing an ATM is about Ugx. 120 million. Add Ugx. 8 million each month for utilities and upkeep.

To cover the monthly ATM fees, you need more than 260 clients per day or more than 8,000 customers/transactions per month. never mind some banks do not charge you to use their automated teller machines . Due to limited customer activity, it is becoming increasingly difficult to cover operational costs for ATMs. In actuality, most bank branches get significant subsidies.?According to this investigation, some bank branches are now housed in "kiosks." You should visit the Absa or Dfcu branches in Kireka, the Stanbic in Kireka, or Pride in Bweyogerere to confirm this.

E-channels: the needless menace

Account-to-wallet, wallet-to-account, agency banking, and other e-channels were the solution to commercial banks' excessive operational expenses. E-channels have made it possible to do business without going to a bank in person.

Preemptive fees were implemented by banks for customers who choose to visit their branches. Equity Bank Uganda was one bank that was effective in moving its customers to online channels; more money was moved through these channels than through its conventional banking.

Banks are believed to be able to reduce their massive operational costs and save money by using digital channels.

However, internal staff are using the weakness in the bank system to their advantage. Internal fraud is partly aided by poor pay; you find people with access to billions earning as low as Ugx. 5m per month. In some branches, the controls put in place are useless. For one reason or another [sick, on leave, or emergencies], one or two people have access to the strong room.

?‘’They monitor very busy and dormant accounts. They create documents, withdraw the money, send it to mobile money, and withdraw it immediately.

?In other instances, bank staff have taken out as little as UGX 100 from customer accounts. Although this might not seem like much, taking off Ugx 100 from 1,000,000 accounts is a cool 100 million. There are also reports that some bank staff work with hackers to steal billions.

?When Stanbic bank staff made unauthorized transfers of funds, worth $1.8M client money

?In February 2023, nine suspects were arrested and paraded before the Anti-Corruption Division in Kololo in February 2023 by the Special Investigations Division, in collaboration with the Fraud Department at Stanbic Bank, Uganda, for a series of computer system intrusions that allowed them to gain unauthorized access to a client's account and transfer USD 1.8 million in funds into other bank accounts created specifically to receive the stolen funds.

At the direction of the branch managers, the funds were withdrawn and stolen, using forged documents of a Kenyan passport number, and forged inter-account transfer forms, all in the names of Mohamed Abdul Hakim Hussein, one of the company directors and a signatory of the account, of Nile Energy.

?The suspects conspired with a few Stanbic Bank employees at the Garden City and Freedom City branches to compromise the Nile Energy account. They conducted Inter Account Transfers (IAT) and withdrew funds from three accounts: one in Dixon Kagurusi Ampumuza's name, one in Petrom Limited's name, and one in Famane Investments Co. Ltd.'s name.

The suspects used falsified paperwork to make at least seven cash withdrawals totaling USD 495,000, USD 287,000, USD 295,000, USD 90,000, USD 60,000, USD 295,000, and USD 495,000 while posing as Mohamed Abdul Hakim Hussein, the Director of Nile Energy.

Analysts say banks need to upgrade their technology and cyber readiness. They occasionally need to engage expert hackers to test their system. Although it is a costly activity, it is necessary. Otherwise, skilled hackers are hired by even large audit firms to test their systems. Professional hackers are incredibly costly yet inevitable, most banks in Uganda don’t use professional hackers to test their systems.

Sometimes you approve a transaction, but the money never gets to the person. an instance where funds from a mobile device are moved to a bank account. The hackers use such opportunities to their advantage. Remember, the integrators for local banks are offsite, away in Nairobi, Kenya.

Worst of all, some integrators have over five banks pegged to their system. And there is no direct link between the bank and the telecom—they are only linked by integrators.

However, the telecoms have?upped their game—you can easily reverse?money sent to a wrong number/person; can you do the same with the bank? No!

Is Bank of Uganda ready?

In April last year, the Bank of Uganda issued a directive that required mobile money agents to demand identification documents from customers who withdrew or deposited more than one million shillings. This directive is one of the measures to curb fraud in e-channels.

The Bank of Uganda has a specialized section for digital payments and transactions in order to fight fraud in e-channel platforms. According to analysts, the department must have the right technical and professional staff to outsmart the hackers if it is to succeed.

?Regretfully, hackers recently visited the Bank of Uganda and took billions of dollars with them.

?A multifaced approach

Customer awareness: Similar to telcos, banks must launch a campaign to educate their customers about fraud, how it is perpetrated, and how to avoid falling for the bad guys' tricks. It is recommended that customers quit keeping their passwords on their phones and notebooks. It is disheartening that some consumers visit banks, give the employees their passwords, and request large amounts of money to be transferred while they relax. Staff members typically keep these details and are free to do anything they choose.

?More experts in e-fraud needed

Analysts also believe that we need more judges and attorneys with specialized knowledge of e-fraud. Few attorneys in Uganda possess the IT know-how or understanding of how hackers work. More knowledgeable judges with IT expertise and skilled attorneys who can identify scammers are needed to realize that it is feasible to take billions of dollars from miles away.

?The writer is a Content Creator, Marketing and Distribution expert. He can be reached via WhatsApp +256782507579