Agent banking scam leaves banks, customers in losses

Mr Mwanje Moses and Ms Edith Nakacwa were some of the victims whom rogue elements ended up gaining unrestricted access to their deposits. 

While Ms Nakacwa has had the situation remedied, most victims don’t always enjoy such happy endings. Most of them tend to have their accounts breached through apps that are usually their bank’s innovation.

These apps typically provide agents with the opportunity to open new accounts, process balance inquiry, cash deposits, and cash withdrawals. They also allow remittance with multi-currency, collection of loan instalment, and payment of third party bills.

This was hardly what regulators envisaged when agent banking was given the all-clear in January of 2016. The model was in fact part of the amendment made to the Financial Institutions Act of 2004. 

The amendment gave leeway to third parties contracted by banks to provide receipt and forwarding of documents in relation to loans and leases; payment of retirement and social benefits; account balance enquiry; provision of account statements; and any other permitted products.

The objective of decentralising banking was to deepen financial inclusion. While the intentions were noble, cracks have started to appear in the architecture. 

“Most of the challenges faced by mobile money agents today without a doubt plague bank agents since both models operate similar systems,” Mr Agaba Muhairwe, a financial sector analysts as well as industry legal expert, writes.   

He adds: “These challenges include but are not limited to fraud, personal security of agents arising from robberies that endanger their lives, lack of support from network operators, theft and poor connectivity.”

Earlier this month, Stanbic Bank Uganda Limited confirmed it had noted and swiftly countered fraudulent activity by a few of its banking agents aimed at defrauding the bank. 

This, it further revealed, was through a process flow error that affected some third party agent banking transactions.
According to the statement issued by the bank, the incident did not affect customer transactions or balances. Agency banking services, the bank noted, continue to operate normally. Effective operational safeguards were reportedly put in place to prevent future recurrences.  

“In liaison with law enforcement, the bank is undertaking measures aimed at recovering from the implicated agents who sought to benefit from the error by retaining funds that should have been remitted to the bank,” the statement reads.  

The Summit Project Frontline 2020 report, discloses that the reported annual cost of cybercrime in Uganda for the year 2019/2020 was Shs11.4b. 

The true cost, however, according to the report, is much more than reported even without factoring in estimated indirect costs like incident response, investigations and reputational damage. 

According to the report, the combined value of the economic crime cases handled totaled to slightly more than Shs171b, with an average of Shs379m direct loss per case. 

Agent banking
•Transaction volumes through shared agent banking have grown to a monthly average of Shs2.2 trillion, according to Uganda Bankers’ Association (UBA). Currently, UBA, which launched agent banking in 2018, is working on a shared platform through which all banks can transact through a single agent.
•The platform, UBA says, currently transacts an average of Shs2.2 trillion per month and has accumulated more than 12,154 agents at the moment.
• In a notice last week, UBA said at least nine banks had now joined the platform, two of which had been confirmed just last week.
•The two banks, including Centenary and KCB last week joined the core of the original banks such as Stanbic, Barclays (now Absa), Bank of Africa, Diamond Trust Bank, dfcu, Housing Finance Bank and GT Bank that had formed pioneered the platform in 2018.
• Prior to the launch of agent banking by UBA, Equity Bank had been operating a similar model and had, by December 2018, accumulated about 1,683 agents across the country.