It has been three years since the Central Bank of Nigeria introduced the <a href="https://www.cbn.gov.ng/cashless/" target="_blank" rel="noopener">Cashless Nigeria Policy</a>. Its aim was to encourage the use of electronic systems for all monetary transactions.
The policy has yielded <a href="https://www.vanguardngr.com/2012/11/cashless-policy-has-come-to-stay-cbn-2/" target="_blank" rel="noopener">benefits</a>: it makes many transactions simpler and safer for more people. But there has been an increase in <a href="http://ndic.gov.ng/ndic-releases-2015-annual-report/" target="_blank" rel="noopener">fraud</a> in the banking and payment systems. These crimes are carried out using the information and communications technology that has flourished in Nigeria since the early 2000s.
A <a href="http://ndic.gov.ng/wp-content/uploads/2015/01/NDIC%20Report%202013.html" target="_blank" rel="noopener">2013 report</a> by the Nigerian Deposit Insurance Corporation identified 14 types of electronic fraud (e-fraud). Automated teller machine (ATM) fraud was in prime position. It accounted for just under 10% of the total value of funds lost to e-fraud and 46.3% of the reported number of cases. The agency’s <a href="http://ndic.gov.ng/ndic-releases-2015-annual-report/" target="_blank" rel="noopener">2015 report</a> points to an increase in the incidence of ATM fraud in Nigeria.
<a href="http://www.forbesafrica.com/entreprenuers/2017/09/01/watchdog-sniffing-deception/" target="_blank" rel="noopener">The Watchdog Sniffing Out Deception</a>
Despite the apparent importance of e-fraud, little scholarly attention has been paid to understanding how it affects the functioning of the financial system and its impact on victims. That’s why my colleagues and I carried out a <a href="http://www.ingentaconnect.com/content/hsp/jpss/2017/00000011/00000001/art00011" target="_blank" rel="noopener">study</a> to examine the experiences of ATM fraud victims in south-west Nigeria. We focused on what made a person more likely to be a victim and on the fraudsters’ tactics.
<h2>Study results</h2>
We found that a number of factors predisposed people to being victims of fraud. These include illiteracy, health problems and issues of vulnerability.
An elderly illiterate man who was interviewed said:
<blockquote>I was given an ATM card and nobody told me how to use it. Outside the bank I gave it to a young man at the ATM to help me withdraw cash. He did it and returned my card to me. After a few days I noticed money had left my account, which I promptly reported to my bank. At the bank I was told that the young man had swapped my card.</blockquote>
Our study also showed that close family members sometimes exploit people’s trust to defraud them. One middle-aged man gave his son his ATM card to draw N5,000 ($31.25) ahead of returning to school. He later discovered that his son had instead drawn N10,000 ($62.50). “If my son could do that to me while I was trying to help him, who can one trust?” he lamented.
<a href="http://www.forbesafrica.com/entreprenuers/2017/06/01/im-like-person-walked-house-got-mugged/" target="_blank" rel="noopener">&#8216;I&#8217;m Like A Person Who Walked Out Of My House And Got Mugged&#8217;</a>
When people are ill, they can be vulnerable to ATM fraud. They depend on others because they can’t get around. A “trusted” person may take advantage.
The story of a young man interviewed during our study helps illustrate this. He was ill and gave his ATM card to a friend to help him buy medication. He was later “shocked” to discover that his friend had drawn an extra N70,000 ($237.50) from his account.
<h2>The coercion factor</h2>
Of course, friends and relatives are not to blame for all ATM frauds. Some occur through coercion, particularly physical attacks and armed robbery at <a href="https://www.vanguardngr.com/2017/02/police-arrest-atm-robbery-suspect-lagos/" target="_blank" rel="noopener">ATMs</a>.
One young woman told us:
<blockquote>I wanted to make a withdrawal on a Sunday evening. The ATM on my street was not working so I had to look for another ATM a few streets away. Unfortunately I was robbed by an armed gang. They made me insert my ATM card to confirm the PIN number and balance. They went away with my ATM card and PIN. I couldn’t do anything until Monday, by which time my account had been drained of N200,000 ($1,250). They took my phone so I could not even alert the bank and block withdrawals.</blockquote>
The success of online fraud depends on offenders choosing easy victims.
<a href="http://www.forbesafrica.com/focus/2015/09/01/con-me-if-you-can/" target="_blank" rel="noopener">Con Me If You Can</a>
<h2>Stemming the tide</h2>
Reducing ATM fraud depends on making people less vulnerable.
For example, anti-fraud education campaigns must use indigenous languages and consider that some bank customers can’t read. Banks must show their customers how their cards work and how to get help when in trouble. Security officers who are not bank staff should not be allowed to deal with customers.
ATM users should be taught to change their passwords sometimes. They must also be cautious about when and where they withdraw money to reduce the risk of attacks. &#8211; Written by <a href="https://theconversation.com/profiles/oludayo-tade-244002" target="_blank" rel="author noopener">Oludayo Tade</a>, Lecturer of Criminology, Victimology, Deviance and Social Problems, University of Ibadan
Originally published in <a href="https://theconversation.com/africa" target="_blank" rel="noopener">The Conversation</a>
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How Nigerian ATM fraud victims are swindled

On June 27, the <a href="https://www.atmia.com/news/the-atm-turns-50-this-year/4665/" target="_blank" rel="noopener noreferrer">ATM turns 50</a>. Former U.S. Federal Reserve Chairman Paul Volcker once described it as the “<a href="https://www.theatlantic.com/technology/archive/2015/03/a-brief-history-of-the-atm/388547/" target="_blank" rel="noopener noreferrer">only useful innovation in banking</a>.” But today, the cash that ATMs dispense may be on the endangered list.
Cash is being displaced in so many ways that it’s hard to keep track. There are credit cards and electronic payments; apps such as Venmo, PayPal and Square Cash; mobile payments services; cryptocurrencies that operate outside the purview of central banks; and localized offerings such as Kenya’s mPesa, India’s Paytm and Bangladesh’s bKash. These innovations are encouraging cashlessness across communities worldwide.
It’s reasonable to expect cash to follow the path of other goods that have been replaced by digital alternatives, such as photos, music and movies. Will cash – and the ATMs that dispense it – experience a “Blockbuster” moment and disappear from our neighborhoods?
Not so fast. Cash will likely become less popular, thanks to the high cost of using cash and the growing array of alternatives. But I expect it will remain with us forever. The future will be “less cash,” rather than cashless.
<h1>The cost of cash</h1>
As of 2013, approximately <a href="http://www.mastercardadvisors.com/cashlessjourney/" target="_blank" rel="noopener noreferrer">85% of the world’s transactions involved cash</a>.
Reliance on cash is quite uneven across the world. While Singapore, the Netherlands, France, Sweden and Switzerland are among <a href="https://www.raconteur.net/technology/the-decline-of-cash" target="_blank" rel="noopener noreferrer">the least cash-reliant countries</a>, in Malaysia, Saudi Arabia, Peru and Egypt, only 1% of transactions are cashless. Even some highly advanced countries, such as Japan, are still highly reliant on cash.
<a href="http://www.pymnts.com/amazon-entertainment/2017/united-states-cash-usage/" target="_blank" rel="noopener noreferrer">Cash usage in the U.S. is still high</a> relative to EU countries. In 2015, cash usage in the U.S. represented 13.1% of its GDP, whereas it represented just 7.1% in France and 4.5% in Switzerland.
Concerns about social equity offer one motivation for lawmakers to push for cashless alternatives. My colleague <a href="http://fletcher.tufts.edu/CEME/about/People/bios/mazzotta" target="_blank" rel="noopener noreferrer">Benjamin Mazzotta</a> and I have studied the <a href="http://fletcher.tufts.edu/InclusionInc/Programming/Research/Cost-of-Cash" target="_blank" rel="noopener noreferrer">costs of cash across a wide range of countries</a>, with a particular focus on the U.S., Mexico, Egypt and India. Our <a href="https://hbr.org/2016/05/the-countries-that-would-profit-most-from-a-cashless-world" target="_blank" rel="noopener noreferrer">research</a> shows that the poor and those with less access to institutions bear a disproportionate share of these costs of using cash.
In the U.S., for example, cash usage imposes a regressive tax on consumers, with the highest impact on people who do not have an account with a bank. <a href="http://fletcher.tufts.edu/CostofCash/~/media/Fletcher/Microsites/Cost%20of%20Cash/CostofCashStudyFinal.pdf" target="_blank" rel="noopener noreferrer">We found</a> that the unbanked pay four times more in fees to access their money than those with bank accounts. They also pay $4 higher fees per month for cash access on average than those with formal financial services. Such fees include those charged for payday lending, buy-here-pay-here auto loans and check cashing. The unbanked have a five times higher risk of paying cash access fees on payroll and EBT cards.
Poorer consumers also have to spend far more time getting cash. On average, Americans spend 28 minutes a month traveling to get cash, but that time isn’t evenly distributed. People who don’t use a bank spend about five minutes longer getting to the place where they can get cash, and unemployed people spent nearly nine minutes more.
In the meantime, other scholars have argued for the benefits of a “less cash” society. <a href="http://press.princeton.edu/titles/10798.html" target="_blank" rel="noopener noreferrer">Ken Rogoff at Harvard</a> has argued that eliminating higher-denomination banknotes can prevent currency from being used to fund illegal activities.
<h1>A world without cash</h1>
A combination of public and private initiatives are currently chipping away at the global predominance of cash, with some countries moving more quickly than others.
<a href="https://www.theguardian.com/business/2016/jun/04/sweden-cashless-society-cards-phone-apps-leading-europe" target="_blank" rel="noopener noreferrer">Sweden</a>, already high on the cashlessness scale, may become the first country to come close to a truly cashless state. Sweden’s history in banks promoting cash alternatives dates back to the 1960s, with digital bank transfers used to pay wages. Cards also become more popular in the 1990s, when banks also started charging a fee for checks. The app, Swish, developed by the major banks, is widely used today for digital money transfers by nearly half the population. Many businesses discourage use of cash, and retailers are legally allowed to refuse cash.
In several other countries, governments are experimenting with innovative digital alternatives. In 2012, the Royal Canadian Mint launched <a href="http://www.cbc.ca/news/technology/mintchip-nanopay-1.3402059" target="_blank" rel="noopener noreferrer">the MintChip</a> project, recently handed over to the private sector. The plan is to store cash on computer chips, enabling the transfer of money between chips through encrypted messages.
In some countries, the private sector has led the way, creating “less cash” societies in the unlikeliest of places. Consider Somaliland, one of the poorest countries in the world. It stands at the forefront of a mobile payment revolution with <a href="https://www.gsma.com/mobilefordevelopment/wp-content/uploads/2013/07/Telesom-Somaliland.pdf" target="_blank" rel="noopener noreferrer">its ZAAD platform</a>. At over 30 mobile payment transactions a month on average, the average citizen of Somaliland is far ahead of the rest of the world’s average of 8.5 such transactions per capita per month.
Perhaps the most dramatic nudge toward “less cash” was experienced recently in India. Last November, the Indian government made a high-risk, high-stakes move by demonetizing the 500 and 1,000 rupee banknotes, in effect <a href="https://hbr.org/2017/03/early-lessons-from-indias-demonetization-experiment" target="_blank" rel="noopener noreferrer">voiding 86% of cash in circulation</a>. Their initial aim was to root out corruption and illegal activity funded by cash. New 500 and 2,000 rupee banknotes were issued, so consumers had to go to a bank and exchange their demonetized currency.
In a country that is <a href="http://fletcher.tufts.edu/~/media/Fletcher/Microsites/Cost%20of%20Cash/COC-India-lowres.pdf" target="_blank" rel="noopener noreferrer">almost 90% reliant on cash</a>, this move led to disrupted enterprises, unpaid wages and long lines at banks. Mobile wallet players were the unqualified winners of the decision, with market leader Paytm claiming <a href="http://www.dnaindia.com/money/report-435-spike-in-paytm-traffic-after-government-scraps-rs-500-rs-1000-notes-2271904" target="_blank" rel="noopener noreferrer">a 435% increase in traffic and a 250% increase in overall transactions and transaction value</a>.
However, despite the surge in mobile payments after demonetization, cash in India remains resilient. In March, five months after demonetization, <a href="http://www.hindustantimes.com/india-news/post-demonetisation-cash-use-back-in-vogue-despite-e-payment-push/story-K9MPFmMKcm1YrbrjDSJFuK.html" target="_blank" rel="noopener noreferrer">cash withdrawals</a> were actually 0.6 percent higher than a year earlier.
<h1>The future of cash</h1>
What explains the resilience of cash, despite its costs and a growing array of alternatives?
Cash is unique among payment instruments in that anyone can transact, any time, any place, with no third parties involved. With this freedom comes strong privacy protection. Currency neither knows nor cares who holds it or when and where a transaction occurred. People have a visceral sense of security when they have cash with them. Much of this sentiment was uncovered in our <a href="http://fletcher.tufts.edu/InclusionInc/Programming/Research/Cost-of-Cash" target="_blank" rel="noopener noreferrer">Cost of Cash studies</a> spanning multiple countries.
These thresholds will, of course, evolve as our societies become more digitally native. However, old habits and perceptions take a long time to turn over. Some merchants will resist the costs of new equipment or fees that accompany cash alternatives. Cash is also <a href="http://fletcher.tufts.edu/InclusionInc/Programming/Research/Cost-of-Cash" target="_blank" rel="noopener noreferrer">considered more convenient and versatile</a>, while with digital transactions there’s always concerns about hacking and fraud.
So, no matter where we are in the world, let us celebrate the ATM’s half-century of service. The human connection with cash will be hard to break. Though cash may become less popular, rest assured that there will always be someone who will stop you in the street asking for directions to the nearest ATM. &#8211; Written by <a href="https://theconversation.com/profiles/bhaskar-chakravorti-274926" target="_blank" rel="author noopener noreferrer">Bhaskar Chakravorti</a>, Senior Associate Dean, International Business &amp; Finance, Tufts University
Originally published in <a href="https://theconversation.com/africa" target="_blank" rel="noopener noreferrer">The Conversation</a>
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Cash is falling out of fashion – will it disappear forever?

Observing Mitchell Elegbe, the founder and chief executive of Interswitch, it’s hard to believe that his first encounter with an automated teller machine (ATM) left him feeling intimidated.
Before he led the technological development of Nigeria’s financial sector by pioneering transaction switching among Nigeria’s financial institutions, his card was seized by an ATM on his first attempt at using the machine.
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The incident occurred while he was an expatriate in Scotland, at a time when technological innovations like the ATM did not exist in Nigeria.
Elegbe developed the idea to create the system infrastructure that would enable electronic payments in Nigeria while working at his first job where he was involved in a project to implement SWIFT—the network for global interbank financial telecommunication—for Nigerian banks.
He quietly nurtured the vision to establish an electronic payment system in Nigeria while charting a course for his fledgling career. On his return to Nigeria, Elegbe was employed by Telnet, a telecommunications company he had worked for before he moved abroad. He successfully pitched the idea of the transaction switch to his boss and was authorized to execute it, but the process did not go according to plan.
“I started by trying to sell the software for switching to traditional players. Most of them were not interested. I thought if I created an organization that would buy the software, I could meet my targets.”
“We would get some other person to run that organization because I could see it was going to be a very viable business. So I went about creating Interswitch.”
Elegbe and his team were able to get the assistance of Accenture in establishing the company. This was instrumental in getting local banks to put down a portion of the start-up capital. However, they faced a challenge with finding an experienced CEO to run the company.
“All the CEO’s we could get were expatriates and what they wanted to earn was more than the entire capital of the company. Somebody in Accenture said ‘Mitchell it was your idea, why don’t you go run it.’ For the first time I thought about it. I had just left school; I would say I became CEO of Interswitch four years after I finished NYSC (compulsory national service) and I didn’t really have a lot of experience. But somehow the shareholders and my former company were willing to take that risk.”
Despite the fact that the company was built on his idea, Elegbe began life at Interswitch as an employee with no shareholding. His priority was not ownership of the company, but rather to see out the execution of what he believed was a brilliant idea.
“I wasn’t fixated on being the one to run it, neither was I fixated on having a majority shareholding or even having any shareholding. I was just happy to see the idea blossom, and that my company, Telnet, got the value that I had promised would be created if they went in this direction.”
Elegbe’s stellar leadership of the company eventually earned him and his team stakes in the enterprise. With the benefit of hindsight, he is convinced that his decision to forgo ownership of the company at inception was the correct and had a significant impact on the company’s stable growth in its early days.
“I was willing to let go of the whole business and I think it was one of the best decisions we took because from day one Interswitch was never run like a typical one-man business. A formal structure was in place; the vision being delivered meant more to us than how much money we were going to make from the business.”
In 2004, Interswitch won a gold medal for innovation at the Computerworld Honors, an international award program which recognizes individuals and organizations whose achievements in ICT have impacted society. Before receiving the award, the company had seven local banks on its network. Thereafter, the number increased to 13, and the first set of non-banks, including an ATM consortium and Globacom, a mobile telecommunications provider, were added. Today, the company has almost all Nigerian banks and 11,000 ATMs on its network.
Eight years after it was set up, Interswitch’s shareholders reached a decision to tweak the ownership model of the company. With the company valued at over $170 million, a private equity deal was structured and two-thirds of the company was sold to a consortium.
The equity injection bolstered Interswitch’s balance sheet and paved the way for it to begin realizing its ambition for the continent, which was soon reflected by its acquisition of Bankom, Uganda’s leading transaction switching company. Elegbe points out that an expansion across Africa is a no brainer.
“You see a lot of players in Africa transcending more than one country and if you want to remain relevant you need to be able to provide a similar service. In Nigeria we do business with large organizations that have aspirations to expand to other countries. We discovered that the infrastructure they use in Nigeria to make payments seamless for their customers is not available in other countries. Interswitch sees that as an opportunity to tap into,” he says.
“Southern Africa is quite developed and so chances are that any payment infrastructure you need to have in those markets already exists. But in West, Central and East Africa, there is still room for development, so we felt we should begin to spread our tentacles across these regions.”
Elegbe believes there are significant opportunities for the integration of the financial systems of countries in sub-Saharan Africa, despite the differences in technology and the states of readiness of the markets.
“Opportunities are huge, but they vary from country to country. Not all countries are at the same state of readiness, so even though country A could be bigger in terms of opportunity, country B may be more ready, despite being smaller. For example, we have a joint venture with the Central Bank of The Gambia and some other banks to replicate a national payment infrastructure in that country with Interswitch acting as management contractors. Gambia is not a very big country but it was ready. The central bank was very focused and wanted this to happen,” says Elegbe.
While agreeing that there is significant scope for growth on the continent, he recognizes that there are challenges for payment switches in markets that lack the volumes required to achieve profitability solely based on the market factors.
“Payment is a game of volumes. So you have what I call a chicken and egg situation; you need the infrastructure to see the volumes to sustain itself. No serious shareholder will want to invest in the market where in two to three years they will not begin to see some returns on their money. Unfortunately, some markets cannot give you that return within this period,” he says.
“We are now looking at a concept where Interswitch needs to be able to approach certain donor agencies to make a case for payments in Africa to be handled from a not-for-profit perspective based on the developmental impact of payments. There is a strong argument for organizations that make money available for social projects to consider payment as a social project worthy of grants to grow payments in some of these countries.”
Nonetheless, Elegbe is confident that prospects are bright for the business across the continent.
“There is no market in Africa today where if you have a first mover advantage you won’t do well as a payment switch. The opportunities are huge.”

Spreading Tentacles Across Africa

It all started with an article in Forbes 14 years ago. Steven Kark was paging through the magazine when he was struck by an epiphany. The article was about three businessmen in the United States who were raking it in through the automated teller machine (ATM) industry. Couldn’t he be a millionaire too?
Kark was 25 at the time, fresh out of university, had just married and found a new job. It made more sense to stick to this steady job but the article lit an entrepreneurial flame in him that refused to go out. He wanted to know more about the industry and bring it home to South Africa.
It wasn’t a spontaneous decision, he mulled over the idea for about a year, before he took the risk. He quit his job, booked his ticket and was off to the States. He spent almost a year there, absorbing all he could about the payment services industry, meeting manufacturers and securing contracts. Kark then bought a cargo container loaded with 23 machines and headed for South Africa. When he arrived, contract in hand, he had no clue how he would pay for the cargo, or even who he would sell to.
“In South Africa banks were wholly responsible at the time for putting in ATM machines. If convenience stores like ‘Seven Eleven’ or ‘Kwik shop’ or a ‘BP Express’ wanted an ATM [they] were totally reliant on [the] bank to put in an ATM,” says Kark.
False promises from investors forced Kark to turn to family and friends. But that wasn’t the only curve ball coming his way. Their first deal with a bank went south.
The bank in question was Saambou. The year was 2002, which saw a dramatic collapse of the bank.
Growing distrust about one of the bank’s directors led to a bank run, as rumors of the bank going under spread, it soon closed down, failing to meet the demand. It was liquidated and bought by one of South Africa’s biggest banks, First National Bank (FNB).
“That was our Black Friday actually. We had all these machines, we were really flying. All those machines were under Saambou [and] it went south. In the end we [made] a deal with Absa, they were quite ready to step into Saambou’s shoes… and today they are fantastic partners of ours,” says Kark.
Today he is the co-founder of Transaction Capital, listed in June, valued at R4.7 billion ($576 million). Transaction Capital wholly owns Kark’s three sub companies, installing ATM machines and dealing with electronic payments. Although the business is diversified, Kark treads carefully.
“We work in close collaboration with the banks today, which are expanding their footprint. If you’re going to push north outside of South Africa, you need to do it in absolute collaboration with a like-minded bank,” says Kark.
Paycorp—previously called ATM Solutions—is the subsidiary that is taking Kark north. It has more than 4,500 independent machines in South Africa and 200 in Namibia and installs at least one-a-day in shops from Cape Town to Windhoek. The fruit of 12 years of business, which has been anything but smooth.
“It was all hands on deck, I used to install the ATMs; I used to sell [them and] cash them myself. But our first time in Durban [I remember] we couldn’t offer a ‘Cash-In-Transit’ vehicle… We helped one retailer load his machine. We would go there every single morning, his wife would come out with cash hidden under her clothes and he would leave us in the back room and we would sit and load up the machine. It was unbelievable stuff, it was fascinating,” says Kark.
This industry is not for the faint-hearted. It is plagued with fraud, robberies and the infamous ATM bombings.
According to the South African Police Service Crime Report 2010/2011, there was a 61.5% increase in ATM bombings from the 2009/2010 to the 2010/2011 financial year. This after a 10.2% decrease from 2007/2008 to 2008/2009 as well 36.2% decrease from 2008/2009 to 2009/2010 financial year.
“It happens to us but certainly a lot less frequently than it ever has been. If it’s not bombings it’s something else, it’s a continuous battle where criminals will think of new and innovative ways to get their hands on your money… You need to try as best as you can to stay a step ahead,” says Kark.
One of the legacies of the ATM is that more people are using them, from cities to villages. It appears to be good for business.
“Where things are a bit geographically removed, you would find that there is a phenomenon of capital flight. If they work in town X and they live in town Y and Y doesn’t have an ATM, they would spend all their money at X. So if you put a machine where people live [they] have the ability to spend. It makes sense for everybody, there’s business for us, the community benefits, the retailer benefits and our partner banks get additional reach into those areas,” says Kark.
In fact, half of the ATMs installed in South Africa are in the villages. Little do people know, they sprang from an idea formed while paging through Forbes magazine.
Kark has framed that article, so he should, it helped make him a fortune.

Tag: ATM

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How Nigerian ATM fraud victims are swindled

Cash is falling out of fashion – will it disappear forever?

Spreading Tentacles Across Africa

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