E-banking fraud has become a global and provocative issue that produces debate among quite a few authors, for example Usman and Shah (2013), Tan and Rasiah (2011), Saleh (2013), Pandey (2010) and Oghenerukevbe (2008) stated that electronic banking fraud is a worldwide problem and is persistently too costly both to the banking sector and to customers. Until the mid-1990s, the banking industry in most parts of the globe was reliable and dependable (Dzomira, 2015). The new millennium started with an overabundance of activities that have contributed enormously to the academic field and the economy in general, especially electronic banking adoption by the financial institutions. Nevertheless, this e-banking adoption has become a global debate in the academic arena and the financial sector is not exempted (Barker et al., 2008).
Researchers in this phenomenon are still developing and formulating different theories for the electronic banking context (Mhamane & Lobo, 2012). Since the introduction of technology, the banking industry has experienced a paradigm change in the phenomenon (Dzomira, 2015a). However, with the development of technology, e-banking frauds have similarly increased.
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Most statistical bases specify that e-fraud is on the increase, while local forms of fraud are usually in decline (Levi & Williams, 2013; Ablon et al., 2014). The Eurostat 2010 Information and Communication Technology survey undeniably confirmed that e- banking frauds have become the most rampant type of acquisitive fraud in both developed and underdeveloped economies (Anderson et al., 2012). However, the impacts of e- banking fraud were grouped into monetary and non-monetary impacts.
2.4.1 Monetary Impact of Fraud
E-banking fraud is a global phenomenon (Alao, 2016). Fraudulent activities have affected a lot of businesses in the banking sector (Rubasundram, 2015). The findings of the empirical study done by Anderson et al. (2012) offer details of e-fraud perpetrated across the globe in the banking sector, showing that globally, banks have lost billions of dollars to indirect and direct losses. Therefore, e-banking fraud losses continue to cause great problems for several industries, despite significant developments in fraud detection mechanisms. IIA, AICPA, and ACFE (2015), concurred that all electronic banking is susceptible to the menace of e-banking fraud. In reaction to the above, this is a time for the banking sector to give a zero tolerance for fraud; hence there is need for e-banking fraud detection and prevention.
Wilhem (2004) calculated annual losses through fraud for different industries in the United States of America to comprise $67 billion in insurance, $1.2 billion in banking, $150 billion in telecommunication, $40 billion in money laundering and $6.7 billion in e-banking. Also, the UK office of National Statistics reported in 2015 that the number of bank accounts being opened through fictitious or stolen identities had nearly doubled from the previous year, with over 23,600 instances reported in 2014 compared to 12,500 cases in 2015. This means, e-banking fraud is a universal problem.
Meanwhile, electronic banking fraud in the United Kingdom had increased from £40.9 million to £60.4 million. These losses occurred through the assistance of electronic transactions and are significant challenges to financial institutions in performing their role
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in the economy (Office of National Statistics, 2015). In 2014, The German cybercrime watchdog, the Federal Office for Information Security, disclosed the stealing of 16 million email addresses and passwords (ENISA, 2014). Also, in 2014, three major world- wide e-banking frauds, together with the biggest ever documented, caused by the theft of customer records and counterfeiting of above two billion credit cards from large US retailers which caused liquidation of some banking industry and other were left in a state of insolvency (Perlroth & Gelles, 2014; Finkle & Hosenball, 2014). This indicates that, bankruptcy is one of the impacts of e-fraud and also, a lot of fraud incidences occurred are as a result of loss of customer’s financial data or identity fraud
Generally, fraud activities eventually lead to bank failures. Financial Fraud Action UK (FFA UK) (2016) in their report between January to June 2016 Fraud Update: Payment Cards, Remote Banking and Cheque”, reported £13.1 million loss in the United Kingdom to telephone banking frauds in the first half of 2016. In the third report of the European Central Bank of Nigeria (2014) on card fraud, the fraudulent transactions committed in 2012 within the “Single Euro Payments Area (SEPA)” totalled €1.33 billion, which serves as an increase of 14.8% from 2011. It was uncovered that 60% of the value of the reported fraud resulted from telephone and internet payments, 23% represented payment at point-of-sale (POS) terminals and fraudulent transactions, and 17% was from automated teller machines (ATMs). This shows that, all e-banking’s channels of transactions are susceptible to frauds.
NIBSS (2015) that there was a significant increase of 78% in the volume of fraudulent incidents in 2014. The author’s findings showed the vast amounts of N485, 194,350 (£1,239,690) and N6, 215,987,323 (£15,882,085) that were lost to fraudsters in 2013 and 2014 with 822 and 1461 cases respectively. NDIC (2016) reported N857 million (£2.2 million) actual loss sustained in electronic banking fraud in Nigeria, representing 27% of the total actual loss of the banking industry in 2016. Therefore, this confirms that, monetary loss is one of the significant impacts of e-banking fraud.
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Moreover, regarding electronic payment system attacks, Financial Fraud Action UK (2015) reported that fraud losses on UK-issued cards in 2015 amounted to £567.5 million, an increase of 18% from £479 million in 2014. Saudi, Ismail and Tamil (2007), in their study titled “Phishing: Challenges and Issues in Malaysia”, showed that in 2004 and 2005, the United States suffered losses of approximately $929 million from phishing frauds, the United Kingdom lost £12.2 million and £23.2 million in 2004 and 2005 respectively from phishing, and the loss suffered in Malaysia was RM18, 000 in 2003. Financial Fraud Action (2015) reported 1,028 cases of phone fraud in 2014 and vishing frauds costing £23.9 million in the United Kingdom in 2014, compared with £7 million reported in 2013. Apparently, vishing and phishing have negative impacts on the e-banking stakeholders. US Payments Forum (2017) disclosed 16,594 victims and $517,653 loss to pharming attacks in 2015. Norse (2014), the Javelin study in USA, estimated losses over $4.9 billion from account takeover fraud in 2012. Meanwhile, Financial Fraud Action UK (FFA UK) (2016), in the report titled “Fraud the Facts 2016”, reported actual loss of £29.4 million in UK financial industries through account takeover attack. Obviously, pharming and account impersonation are part of the major challenges facing e-banking activities. In addition, Everyone API (2014), in the study “Fraud Mitigation and Identity Verification for Card Not Present Transactions” disclosed that businesses suffer losses of over $11,000,000,000 dollars yearly. The percentage of income lost to card-not-present fraud is increasing, rising from 0.51% in 2013 to 0.68% in 2014. Losses to merchants through phone, web, and mail order are mainly from card-not-present financial transactions. Likewise, Pandy (2016) declared in the study titled “Mitigating Fraud in the Card-Not-Present Environment” that card-not-present fraud resulted in 25% of global fraud losses and 45% of card loss in the US in 2015. And also, Dzomira (2015) study of “Cyber-banking Risk Mitigation” the Banking Industry in South Africa” reported R168.1 million and R189.2 million losses due to card-not-present fraud in 2014 and 2015. Therefore, there is a need to begin to develop strategies to mitigate card-not-present fraud, as several developing and developed nations have experienced significant spikes in this type of fraud.
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Financial Fraud Action UK (FFA UK) (2016) reported a £39.24 million loss for skimming device fraud. According to RSA (2010), this increase is a result of an increase in usage of advanced and sophisticated tools by the fraudsters to target internet banking users through the automated pickpocket machine to pick card data and malware which targets vulnerabilities in the user’s computer rather than the bank’s own devices, which are hard to attack. Furthermore, the recent upsurge in fraud provides growing evidence that networks of malware and hijacked computers serves as most momentous threats in relation to present-day identity theft.
2.4.2 Non-Monetary Impacts
Manyika and Roxburgh (2011) argued that the banking sector and customers suffer not only money loss, but also non-monetary loss due to the incidence of frauds. Fraud has a negative impact on operating efficiencies, reliability of services, companies’ reputations, investors’ confidence, employee morale, and can also lead to potential fines levied by regulatory bodies (BITS, 2003). Unfortunately, electronic banking causes huge investment losses, substantial legal charges, loss of assurance in capital investment, and imprisonment of important individuals (IIA, AICPA & ACFE, 2015). In addition, Norse (2014) supported the view that electronic banking fraud can lead to loss of consumer trust, damage brand reputation, cause financial damages, and endanger compliance with financial institutions’ regulations.
Generally, in conclusion, there is a need for the collective accord of regulators and banks to enact policies and implement measures to protect and prevent the banking system from e-fraud threats. Therefore, the importance of appraisal of electronic banking fraud prevention and detection cannot be overemphasised. Hence there is a need for incessant improvement in safety and security to avert frauds and alleviate the risks suffered by banks, customers and other industries, which have resulted in loss of confidence in electronic banking systems.