South African banks hit by fraud crisis

South Africa’s banking sector is experiencing a rapidly escalating fraud crisis, with the volume and success rate of attacks seemingly outpacing existing defences.

This is according to a recent survey conducted by biometric intelligence platform BioCatch, in which they interviewed 1,200 fraud and financial crime experts across 17 countries.

All respondents to the survey were of a managerial level or higher, with 96% of the 100 South Africans surveyed identifying themselves as primary decision makers within their departments.

The results of the report indicate which threats are most concerning to industry leaders, and how prepared they feel to face them amongst regulatory and technological shifts.

BioCatch Director of Global Fraud Intelligence Thomas Peacock revealed that South African banking leaders were more likely to report rising fraud than those from the other surveyed countries.

75% of South African respondents said fraud attempts at their respective institutions were on the rise, compared to an average of 61% across the 17 surveyed countries.

79% said their losses from fraud were also increasing, while as much as 81% of the respondents estimated these annual losses from fraud had exceeded $5 million (R82.3 million).

These percentages climbed even higher when looking at just C-level executives, who made up a majority of all the South African respondents at 57%.

“That perception was even more pronounced in the C-suite, where 81% of executives believe fraud attempts against their organisation are increasing,” BioCatch said.

“84% report growing fraud losses, and 86% estimate their organisation’s annual fraud losses in excess of $5 million.”

78% of the surveyed leaders said reputational damage caused by fraud was equal to or of higher importance to them and their institutions than potential financial losses.

Meanwhile, almost two-thirds of the respondents said they had reimbursed less than 50% of their respective scam victims, balancing customer trust with liability considerations.

Confidence in defences remains high

Despite the growing prevalence of fraud amongst South Africa’s banking sector, many of the respondents expressed heightened confidence in their capacity for fraud prevention.

As much as 91% of the surveyed banking leaders rated their fraud control mechanisms as being effective, with 64% rating them as very effective.

66% of respondents admitted that it took them on average longer than a day to resolve their respective fraud cases, lower than the 74% global average.

BioCatch Global Advisory Director Jonathan Frost explained that fraud in South Africa was becoming more sophisticated, however, and increasingly hard to prevent as a result.

“Criminals impersonate trusted institutions to trick victims into approving payments, while tactics like account takeovers, identity fraud, SIM swaps, and mule accounts continue to strain fraud teams,” Frost said.

“Real-time payment systems such as PayShap increase convenience but leave little time to detect and prevent suspicious transactions.”

Frost said the rapid adoption of AI tools had greatly accelerated both the scale and precision of attacks, alongside an increase in violent fraud crimes such as express kidnappings.

He also warned about the rise in targeted social engineering, which he said had become the primary method of attack in the modern fraud landscape.

As opposed to breaking into the bank itself, fraudsters increasingly adopt tactics of emotional and mental manipulation on a bank’s customers instead, causing them to act irrationally.

These fraudsters exploit emotions such as trust, urgency and fear in order to gain access to these customers’ bank accounts and their funds.

“The question is not whether you can afford to protect your customers from social engineering, but whether you can afford not to,” Frost said.

“Customers are not a vulnerability to manage. They are an asset to protect. When customers incur losses due to fraud, banks also lose deposits, trust and legitimacy.”