Article summary
- Fraud incidents on payment platforms in Nigeria are impacting e-commerce growth, discouraging online purchases and making pay-on-delivery the preferred option for many Nigerians.
- Merchants face challenges such as identity theft, chargeback fraud, and man-in-the-middle attacks, while customers fear their payment details being used for fraud.
- Building trust throughout the e-commerce ecosystem is crucial, including educating customers on risks, choosing reputable payment partners, and employing robust security measures like real-time risk monitoring and fraud detection.
Technology experts have said that the increase in incidences of fraud across payment platforms is threatening the growth of e-commerce in Nigeria. According to them, this is discouraging many Nigerians from making purchases online, and those who patronize e-commerce platforms are only willing to make a purchase if there is the option of pay-on-delivery.
While customers are concerned about their payment details being used to defraud them, the experts said, merchants, on the other hand, are struggling with identity theft, chargeback fraud, and man-in-the-middle attacks.
Economic losses to fraud
Reviewing the state of e-commerce in Nigeria, Country Manager for DPO Pay, Henry Owolabi, said:
- “Fraud is a large, complex, and often organized problem in Nigeria, costing the local economy hundreds of millions of US dollars each year. This is hurting the growth of a promising e-commerce sector because players across the ecosystem are nervous about losing money—merchants because of the chargebacks they face, and shoppers are worried about sharing their card details in case they have their accounts compromised.”
He added that with the rise in fraud, many Nigerians have become wary of shopping online. He added that his company had found that around 60% of users would rather opt for pay-on-delivery options than share their card details when using online payment options.
- “This loss of confidence in the payment systems impacts e-commerce growth. Users are missing out on a low-friction customer experience because of the far-reaching security and control options deployed in order to safeguard customers. Online sales can still take place, but they are happening in a less than optimal environment. E-commerce is seen as high risk by shoppers, impacting sales, and new merchants are wary of entering the market, cutting off earning potential for young entrepreneurs,” Owolabi added.
Also speaking, Managing Director, Network International, Nigeria, Adelola Agbebiyi, cited a March 2023 report by the Nigeria Deposit Insurance Corporation (NDIC), which warned that fraudsters are getting more creative, requiring extra vigilance from the Nigerian public.
- “Nigerians are facing multi-dimensional fraud such as social engineering including phishing, smishing, and vishing; authorized push payment fraud, or impersonation; identity theft; account takeover and mobile sim swap fraud; chargeback fraud; and even internal collusion.
- Merchants, on the other hand, are struggling with identity theft, chargeback fraud, and man-in-the-middle attacks,” he said.
Way forward
While noting that trust is the cornerstone of future growth, Owolabi said a big part of the solution lies in building trust throughout the entire e-commerce ecosystem.
- “The work already done by industry players such as banks, merchants, and payment service providers is helping educate customers on risks and how to avoid them. This should continue and could even increase. But it is also up to merchants to choose payment partners that have a long-term industry reputation, backed by technical credentials, that they can trust to keep them and their customers safe. The travel and tourism industry is one sector that has largely succeeded in this regard,” he said.
On his part, Agbebiyi said payment service providers (PSPs) and their technology partners must ensure that they do everything they can to keep merchants and shoppers safe. These, he said, include employing real-time risk monitors, specialist risk teams, smart pattern identification, real-time payment confirmation, and around-the-clock fraud monitoring.
According to a 2021 fraud report from the NIBSS, the number of overall fraud attempts in Nigeria between 2019 and 2020 increased by 187%, with web accounting for 47%, mobile 36%, ATM terminals 9%, and POS terminals 7%.
