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Growing MFS frauds pose threat to Bangladesh’s cashless journey

Published : Friday, 26 May, 2023 at 12:00 AM  Count : 1474

Growing MFS frauds pose threat to Bangladesh’s cashless journey

Growing MFS frauds pose threat to Bangladesh’s cashless journey

For economists and digital experts, paper currency is not an asset of the future. It belongs to yesterday, having served as a means of payment and store of value for centuries. But the rise in digital fraud is a concern. Here, Bangladesh, which is a global success story in the mobile financial services revolution is no exception.

When the world is moving toward a cashless society and Asia is leading the queue, Bangladesh is not sitting idle rather than moving fast driven by its robust mobile financial services (MFS) under a conducive regulatory environment. The average daily transaction of MFS operators has crossed Tk3200 core and its volume shows a growing trend. Experts predicted that MFS will get the better of all other methods to push forward the Bangladesh journey towards a cashless society for bettergrowth thanks to the spread of smartphones among anyone and everyone.

But the path is not a bed of roses. the rise in digital fraud is a concern. When good things happen slowly then bad things happen quickly. Since technology is evolving, scammers and fraudsters are not sitting idle. They are using increasingly sophisticated tactics to steal money from common people who are mostly less literate, remained excluded from financial services and now enjoying the benefits of mobile banking services. So, the MFS industry is now facing risks and challenges in Bangladesh. Here the role of MFS players is inadequate as most of them are engaged in fighting each other to grab the market share leaving their innocent users- mostly poor and low-income people in the hands of fraudsters who are smart and clever.   

How many fraud incidents are taking place in mobile banking in Bangladesh? It is a tough question to answer since it is tougher to find figures. The issue came into the discussion after Rapid Action Battalion (RAB) arrested 13 members of a mobile banking and debit or credit card forgery ring from Dhaka and Bhanga Upazila of Faridpur. Readymade garment workers, small entrepreneurs, and low-income and less-educated people were the victims of the forgery ring. A senior RAB official said 10-12 cases of extortion using mobile banking services are reported every day, according to reports published in dailies.

The worrying fact has come in a recent survey conducted by the Policy Research Institute of Bangladesh (PRI) that shows one in every 10 MFS users in Bangladesh has faced financial fraud sometimes.The survey, which was carried out from August to September last year covering 9,279 respondents in urban and rural areas, also found that "compromised PINs" and "scams involving impersonation" are primary frauds experienced by MFS users.Moreover, the average size of the financial loss from using MFS accounts amounted to over Tk9,000, and although no significant difference in the average loss was recorded between urban and rural residents, the size was seen to be increasing with higher educational degrees. Of the 2,000 MFS agents also surveyed for the study, nearly 13% said they have experienced fraud with their MFS accounts.The average size of financial losses suffered by agents from operating MFS accounts amounted to over Tk18,000, with a maximum loss recorded at Tk70,000.Agents also blamed "compromised PINs" as the main type of fraud, with the highest financial loss incurred from this amounting to more than Tk20,000.

As the incidents of mobile banking fraud are rising alarmingly the UK recently decided to ban all cold calls for financial products. The new British Prime Minister Rishi Sunak already has launched a plan to tackle scams: "Fraud accounts for over 40% of crime." For developing markets, like Bangladesh and India, the situation is too cautious. According to data released by the Reserve Bank of India, 2,331 fraud cases involving Rs 87 crore were reported by banking entities during the six-month period as against 1,532 frauds involving Rs 60 crore. In Bangladesh the situation is no doubt, more worsen. Bangladesh Bank has yet to release such data on MFS fraud incidents and all MFS operators are yet to be united to fight frauds.

Keeping pace with the growth of digital transactions, industry experts say, new modes of cyber fraud are introduced by the culprits.Financial literacy through financial education can only minimise these cyber frauds and the common man can safeguard his hard-earned money.New fraud research released by The FINRA Investor Education Foundation (FINRA Foundation) shows that individuals who are socially isolated or who have low financial literacy levels are more likely to lose their money to a fraudster.In Bangladesh, the level of financial literacy is at the bottom level as most MFS users in Bangladesh are mostly poor, low-income people and not well educated. Unfortunately, MFS operators as well as the regulators do not give proper importance to this crucial issue.

The government as well as Bangladesh Bank are promoting the cashless transaction which has ignited a revolutionary journey towards a digital economy for a better and smart Bangladesh. Currently, 13 MFS operators are offering different services to millions of people mostly those who remained out of formal banking services. But the poor financial literacy and awareness programmes may halt Bangladesh's journey towards a cashless society which gained momentum in 2011. With MFS tools, people are receiving remittances and gifts instantly from their relatives and friends.

To push forward the Bangladesh journey towards a cashless society, it is the responsibility of MFS providers to set a minimum risk management structure on the platform to guide operators. At the same time, it is their responsibility to educate their customers with adequate financial literacy. To educate customers, all MFs players should stand on a single platform and fight together against fraudsters. Bangladesh Bank can play a vital role in its regulations.     
But the big concern is that regulations in Bangladesh sometimes fail to enforce its rules due to the government's intervention. Such interventions destabilize the level playing field and ignite uneven competition among market players which opens a window of opportunity for mobile banking fraudsters to steal money from the pockets of innocent users- a red alert.

For example, to mitigate risks and fraud in mobile banking, Bangladesh Bank introduced the KYC protocol in line with the Financial Action Task Force (FATF).Banks follow this process while opening accounts and periodically update the same.This is a part of the bank's due diligence framework. So, one of the major pillars on which this MFS industry stands is the simplified KYC introduced by Bangladesh Bank and the BFIU. But millions of MFS accounts were opened by some MFS operators without KYC protocol. Some operators were too powerful and interlinked with the government. So, Bangladesh Bank had nothing to take action without issuing a general guideline.   

MFS customers who are in front of Bangladesh's journey toward a cashless society are poor and low-income citizens. Rising fraudulent activities may discourage them to shy away from using MFS tools which ultimately will hit financial inclusion and jeopardize the Bangladesh cashless journey.

The writer is a senior journalist

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