Nigerian fintech lost ₦146 Million initially recovered from fraudsters

Fraud recovery is an important element of the financial services industry, yet cash recovered by fintechs and banks can occasionally be lost to fraudsters.

“Eneke the bird says that since men have learned to shoot without missing, he has learned to fly without perching,” writes Nigerian literary legend Chinua Achebe in “Things Fall Apart.”

He might have just as well been discussing how financial institutions must adjust as bad actors continue to pursue the money. In the first quarter of 2024, financial institutions reported 11,472 fraud cases in Nigeria.

When fraud happens, banks and fintech companies assist their consumers in recovering funds by collaborating with law enforcement and the courts. Court rulings enable banks and fintechs to force recipient banks to freeze accounts or reverse suspicious transactions.

Commercial banks receive reimbursements via bank drafts, whereas fintech companies employ partner banks. The funds are held in fraud recovery accounts before being reimbursed to clients. However, these recovery accounts can be compromised.

In May 2023, an African fintech company lost ₦146,188,208 ($317,200) while assisting consumers with fraud recovery.

According to court filings, the fintech that stored the recovered monies with a tier-2 Nigerian commercial bank said the account had been “fraudulently hacked into.” The stolen monies were transferred to accounts at 26 banks and fintechs, a common tactic employed by fraudsters to broaden the trail and complicate recovery operations.

“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 viewed by TechCabal.

While the industry has begun to rebound, customers are becoming 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 requested the court to order the 26 banks and fintechs to share their customers’ KYC records and prevent their accounts from completing transactions, emphasizing the necessity of KYC records. The company has also requested that the court issue arrest warrants on three accused culprits.