Combating fraud in the lending ecosystem: Your role as a digital lender

What keeps fraud thriving? 

Short answer: SILENCE.

Slightly longer answer: NOBODY IS DOING ANYTHING!

Fraudsters bank on your silence and my silence to thrive; they are aware that their victims will stay quiet, as they may face jeers and sneers if they admit to getting scammed. Hence, these grifters continue to succeed in their dishonest schemes. Advanced nations understand this quite well, so they emphasize the importance of community strength.

Roughly a month ago, Business Day reported in one of its pieces on how several commercial banks have suffered significant losses, amounting to billions of Naira, owing to fraudsters. Even more troubling is that these banks, in the face of their challenges, have been silenced and shamed into not openly discussing or addressing the issue. Ergo, the hush-hush tone with which the media has reported these incidents, all to shield the general public from panic and the fear of their banks being free real estate. But do we truly agree that this is healthy in the long run? The faux-pretense of “all is well” may just be what enables fraudsters to defraud even more. 

Featured read: Lenders battle against fraudsters; a case for an industry blacklist

The subtle art of REPORTING

In an industry as enticing as fintech, the need to build and thrive solely on your own is a delicious pie waiting for fraudsters to feast on. It is also one of the driving forces for Lendsqr to create a Fort Knox security-level community of lenders constantly looking out for each other through reporting.

Sadly, one of the many unfortunate traits of human nature is the tendency to shame victims into silence, causing numerous victims to feel hesitant to report crimes committed against them. This should not deter you as someone looking to thrive for the long haul.

As a lender hoping to scale your business, the crux is to defy expectations and precisely do what these Gremlins (pardon my French) don’t anticipate – REPORT. Reporting cases of serial defaults, fraud cases, questionable borrowers, security breaches, or the occasional 419 troopers is the key to building an impenetrable business, a resilient community and a secure ecosystem for all. 

We agree that regulators must stop the shame game to encourage lenders to come forward more often. But until then, we can’t let these fraudsters shame us into silence. There is a pressing need to break free from the shackles of shame and collectively stand against fraudulent activities.

Featured read: Protect your lending business from fraudsters

What regulatory bodies do you report to? 

The big question is, who do you report to as a digital or traditional lender in the ecosystem?

Different cases merit different bodies. Some are more formal than others. Let’s run through some of these regulators, shall we?

• Credit bureau: Cases of loan defaults should always be promptly reported to the credit bureaus (CRC, FirstCentral, CreditRegistry). By doing so, you’re safeguarding your interests and fellow lenders from potential harm. Timely reporting ensures that the information is available to the lending community, enabling others to make informed decisions and avoid falling prey to individuals with a history of defaulting.  
• Private-owned blacklist: For example, The Lendsqr Karma, which covers over 3400 lenders, is a superior approach to security. It embraces the concept of “community” as a powerful tool to combat bad actors and defaulters. The idea is rooted in the belief that “There is strength in numbers.” 
• Central Bank of Nigeria (CBN): This is especially useful for substantial fraud cases. It may be quite a challenge to explain the intricacies to the higher-ups of the finance ecosystem. They may make you feel careless or incompetent. Do not mind because having fraud cases on record and not glossed over is much safer. Thus, we highly recommend prompt reporting of security breaches, hacks, etc.
• Nigeria Inter-Bank Settlement System (NIBSS): Despite the persisting difficulty in reporting fraud cases almost as hard as rocket science, we still maintain that it is necessary to report promptly, as it ensures official documentation of fraudulent activities within the financial ecosystem.

What’s the next step forward?

As a nation, we have been exceptional pioneers in the financial ecosystem, leading the way in digital lending, payment service platforms, mobile banking, and more. Given our significant role, it is essential that we consistently uphold and maintain a high standard of value. 

As lenders of the ecosystem, we have our part to play by adhering strictly to Know Your Customer regulations and appropriate profiling for dodgy transactions (keep a keen eye on round-tripping). A commitment to robust KYC processes and meticulous transaction scrutiny can help you identify and prevent potential risks, ensuring a safer and more trustworthy lending ecosystem for all players involved. Lendsqr lenders’ are also privy to an improved tool that allows them to manage customers in compliance with the highest level of KYC requirements. 

CBN and other regulatory bodies must also make the process of reporting more straightforward and less judgemental. They must also enforce strict adherence to appropriate Customer Due Diligence, which will help fintechs identify and report suspicious activity.

The Credit bureaus are not left out; they must also be keen on constantly updating the information they have on their database and cutting down on the cost of acquiring data, especially for small-scale lenders.

Most importantly, it is high time the Government, in liaison with key regulatory bodies, enforce policies that make the consequences of fraud expensive and severe. For instance, there could be a transaction ban on anyone caught or imposing hefty fines or restitution payments to compensate for damages caused by the fraud. 
We firmly believe that implementing the above measures will drastically reduce the occurrence of fraud. Share your thoughts, questions, or suggestions with us at [email protected].