South Africa’s banking sector is facing an escalating fraud crisis, with criminals increasingly outpacing existing security measures, according to new survey findings.
The data shows that nearly 79% of fraud and compliance leaders are seeing rising fraud losses. With digital banking attacks on the rise, concerns are mounting over whether banks and consumers are adequately protected.
Jonathan Frost, Global Advisory Director for BioCatch, said that while banks have traditionally focused on so-called “unauthorised fraud” – such as hacking and credential theft – there has been a massive shift towards manipulating customers through social engineering.
“The real question for South Africa’s banks is how can we identify when customers are being manipulated by criminals?” Frost said. “That might be something as simple as a bank impersonation fraud where the person claims to be from the bank and asks them to move their money to a safer account, or it could be more complex and longer-form frauds such as investment frauds which can take place over many months.”
Frost noted that banking leaders depict a fraud landscape where both the volume and success rate of attacks now outpace existing defences. He pointed to a combination of technology gaps, skills gaps, and deeper weaknesses in how banks assess and manage risks.
“It’s also really unfortunate for the banks – they are the last line of defence in a relatively long chain,” Frost said. “The majority of these scams originate in the tech sector. Banks are having to identify risks associated with their customers’ behaviour at the final step.”
Frost warned that criminals are seeking to use artificial intelligence as a “force multiplier” within their criminal enterprises. “We would reasonably say that there’s worse still to come,” he added.
On regulation, Frost said that while tougher rules could provide useful incentives, more regulation alone may not solve the problem. He cited Australia as an example, where banks have formed a real-time consortium – in conjunction with BioCatch – that allows sending and receiving banks to identify risk in real time when customers make payments.
“That’s proved to be very positive because banks have been able to alert customers to the risk and deflect them from making the payments. The customer then doesn’t lose the money, but also the bank doesn’t incur the operational costs associated with blocking the payment and remediating after the fact,” Frost said.
He also pointed to practices in the United Kingdom, including “confirmation of payee” to verify account holder names and a 50/50 liability split between sending and receiving banks when a customer falls victim to fraud.
“Fundamentally, reimbursement isn’t a solution,” Frost said. “What is a solution is creating the right incentives within the environment to remove financial crime. South Africa should definitely look towards Australia and various parts of Europe to find best practice and adapt its banking system to this growing threat.”
