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FRAUD IN MOBILE FINANCIAL SERVICES

Fraud in Mobile Financial Services Joseck Luminzu Mudiri

A MicroSave Publication

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FRAUD IN MOBILE FINANCIAL SERVICES

Table of Contents BACKGROUND AND CONTEXT ............................................................................................................................. 1 KEY ENABLERS OF FRAUD .................................................................................................................................... 2 MOBILE FINANCIAL SERVICES DEPLOYMENT LIFECYCLE ......................................................................... 3 CATEGORIES OF FRAUD IN MOBILE FINANCIAL SERVICES ....................................................................... 8 IMPACT OF FRAUD ................................................................................................................................................. 13 CONCLUSION ............................................................................................................................................................ 15 APPENDICES.............................................................................................................................................................. 19 APPENDIX 1: CONSUMER DRIVEN FRAUD ..................................................................................................................... 19 APPENDIX 2: AGENT DRIVEN FRAUD ............................................................................................................................ 26 APPENDIX 3: BUSINESS PARTNER DRIVEN FRAUD ................................................................................................... 33 APPENDIX 4: SYSTEM ADMINISTRATION AND MANAGEMENT ............................................................................ 35 APPENDIX 5: MOBILE OPERATOR DRIVEN FRAUD ................................................................................................... 38 APPENDIX 6: DEFINITIONS ................................................................................................................................................. 42

END NOTES ............................................................................................................................................................... 44

FRAUD IN MOBILE FINANCIAL SERVICES

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BACKGROUND AND CONTEXT

For many years, financial inclusion was a major challenge globally, due to the high costs involved. To offer financial services, premises had to be constructed, new employees recruited and significant capital investments made. Financial institutions concentrated on the high value consumers that yielded larger revenues and largely excluded the majority of the population. The introduction of mobile telecommunications and later, the adoption of mobile phones to provide financial services changed the dynamics of the industry, bringing financial services closer to the public through existing merchant infrastructure within local communities. The success of M-PESA since its launch in Kenya in 2007 has increased the appetite for mobile financial service deployments especially in developing countries. Financial institutions such as banks and microfinance institutions are also investing in the provision of mobile financial services. The implementation of mobile financial services, like other financial services, faces risks and challenges. This paper addresses fraud as a challenge in the provision of mobile financial services. The Importance of Studying Fraud in Mobile Financial Services  The study of fraud helps mobile financial service providers build a fraud lifecycle that is closely aligned to the product lifecycle. Different types of fraud will occur at different stages of the product.

 The study will help stakeholders understand the kind of interventions that are necessary to address these risks.  The study should help lower the cost of intervention by enabl