While more South Africans are turning to mobile and other electronic forms of banking, cases of fraud are also on the increase. Tom Nevin reviews the latest report released by the country’s banking Ombudsman.
With almost 38m cellphone users and over 22m consumers enquiring in 2013 about cellphone banking South Africans are keeping pace with the global electronic banking revolution,” says Advocate. John Myburgh SC, chairman of the South African Banking Services Ombudsman (OBS) in the institution’s latest annual report.
But the report notes that internet banking fraud perpetrated via cellphones reached its highest ever level in 2013. Cellphone phishing accounted for 46% of the total internet banking-related complaints received by the ombudsman last year, a 27% increase on 2012.
Cellphone phishing involves fraudulent e-mails and text messages being sent to unsuspecting bank customers in an effort to extract confidential internet banking credentials. According to Nicky Lala-Mohan, an Ombudsman board member, SIM swaps will become a bigger problem in the future. “The fact that cellphone companies are also implicated creates additional liability,” he says.
SIM swapping is where an individual (in this case the fraudster) replaces a SIM card on a particular cellphone number so that all bank communication is directed to the replacement SIM card, such as once-off passwords used to transact via internet banking.
Johan Conradie, investigations manager at the OBS, reports that no sooner had banks applied new security to combat SIM swaps, than fraudsters were beating the system by teleporting numbers from one cellphone service provider to another.
Where there was negligence on the part of cellphone companies, the Ombudsman referred cases to the Independent Communications Authority of South Africa (ICASA).
The OBS annual report documents that of the 4,613 cases opened by the ombudsman in 2013 (as against 4,450 in 2012), 37% were related to fraudulent ATM transactions – a 6% year-on-year increase. Internet banking accounted for the second-highest number of cases opened per category, at 17%. This was followed by mortgage finance at 12% (a 5% drop since 2011) and credit cards and personal loans,each reflecting 7% of cases opened.
Customers at fault
Fraudulent ATM transactions accounted for 23% of all the complaints received by the ombudsman’s office, but only a third of these cases found in favour of complainants, as they were most often the fault the customers themselves.
“Such instances,” says Advocate Clive Pillay, South Africa’s banking ombudsman, “include cases where a customer unwittingly allowed someone to assist them at an ATM or peer over their shoulder and view their personal identification number, as well as where ATM machines were tampered with so that customers left their cards in the machines in the belief that they had been swallowed.”
Lala-Mahon said that the increase in ATM-related fraud was opportunistic, “like cash-in-transit heists were a few years ago”, before police and vehicle intelligence curbed it.
The Ombudsman closed 5,134 cases in 2013, considerably more than the 4,450 cases it closed in 2012. Nearly 50% of the cases were closed within two months.
The office awarded R23m ($2.3m) to complainants, an increase of R6.6m ($618,000) on 2012. This was due to the larger number of cases closed in 2013, as well as bigger awards being made in ATM (R3m – $281,000), internet banking (R10m – $940,000) and mortgage finance (R4.5m – $421,000) cases.
“The OBS’s turnaround times were largely unmatched by global banking ombuds,” observes Pillay. “The only ombud with a better record is in Canada, where fewer than 300 complaints were handled in 2013.”
“In many ways, they are at the forefront of developments in this dynamic market, with continued innovations in mobile banking products and services spurred by the intense competition among banks for the consumer’s rand.”
Meanwhile, Advocate Clive Pillay, South Africa’s banking ombudsman, urged banks to review the wording of their contracts to make it simple and lucid.
In keeping with a recent makeover of the Consumer Protection Act, contracts must be drafted in simple, understandable and unambiguous language, “yet South African banks seem to be falling short of the stipulation”, observes Pillay.
“We receive complaints from consumers who are not sure what they have signed and, consequently, find themselves in disputes with their banks. Consumers sign a loan agreement, for example, when, as a result of woolly language and legalese, they think they are signing a vehicle financing agreement.
“Writing contracts and forms in plain English would help to reduce the number of complaints of this nature. This has become even more important recently, as it is also one of the requirements of the Treating Customers Fairly initiative of the Financial Services Board.”
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