Research & Analysis

Fraud in Mobile Financial Services

The rapid growth of mobile financial services (MFS) has facilitated access to cheap and reliable financial services to an ever increasing formerly unbanked population segment. Innovative mobile money services like M-Pesa in Kenya and Tanzania have grown into major payment services that move billions of dollars annually. Unfortunately, MFS have also rapidly become a conduit for fraud and other criminal activity. 

Various fraud types have been noted in key MFS markets, including consumer-facing fraud from agents and third parties and fraud perpetrated against agents. Additionally, incidences of internal fraud have created significant economic loss for providers and affected a considerable number of mobile money users in these markets. 

Failure to rein in internal and external fraud can reduce perceived consumer benefit and financial inclusion gains in these markets. It also can affect financial services providers’ business case. Furthermore, regulators may be less inclined to allow the needed space for innovations to expand and diversify MFS, to the extent that they view providers’ internal controls as inadequate to detect and mitigate fraud. Providers, therefore, need to implement controls that strike an appropriate balance between risk management and other business objectives.

This Brief highlights how fraud is impacting mobile money providers, agents, and consumers, as well as efforts to reduce risks and vulnerabilities to fraud in mobile money and related services. While it is not possible to remove fraud entirely from any service—mobile money included—the examples addressed here show that fraud is a major issue in several key markets for consumers and agents, and that there are simple steps providers can take to reduce their vulnerability to common fraud types. 

These steps include improving internal controls, building agent capacity to protect themselves and their customers, and revisiting procedures such as account access and SIM swaps, where necessary, to prevent common fraud schemes. With the introduction of new products and delivery channels, the types of fraud will continue to evolve, which means that monitoring mechanisms, such as compliance checks and customer feedback channels, will continue to be key elements to effective fraud and risk mitigation.