One in every 10 mobile financial service (MFS) users in Bangladesh have faced financial fraud, according to a recent survey by the Policy Research Institute of Bangladesh (PRI).
The survey, which was carried out from August to September last year covering 9,279 respondents in urban and rural areas, also found that “compromised PINs” and “scams involving impersonation” are primary frauds experienced by MFS users.
Dr Ashikur Rahman, senior economist at PRI, and Azmina Rede, a consultant at the institute, carried out the survey as a part of a research paper titled The State of DFS Consumer Protection in Bangladesh.
The findings of the survey were revealed at a webinar organized by PRI on Wednesday.
According to the study, there was no indication that users from any gender are prone to fraud, or that residency in urban or rural localities makes people more vulnerable to such malpractices.
In his keynote presentation, Dr Rahman said there is also no suggestive evidence that users who depend on family members, friends or agents to operate their MFS are more prone to fraud.
The spatial distribution indicated that Sylhet division has the highest propensity of fraud — more than three times the national average.
Moreover, the average size of the financial loss from using MFS accounts amounted to over Tk9,000, and although no significant difference in average loss was recorded between urban and rural residents, the size was seen to be increasing with higher educational degrees.
“The digital financial sector, specifically MFS, has seen significant growth, propelling us towards a cashless society, while having a major socio-economic impact on both formal and informal as well as urban and rural demographic. However, to safeguard this sector, its consumers need to be protected to retain the market growth,” Rahman told Dhaka Tribune.
He said that the report found a significant portion of the scam victims reluctant to depend on MFS anymore, especially in rural areas.
“Moreover, according to global literature, PIN-related scams are most affluent during the acquisition stage, however, when a market matures, KYC-related scams increase despite a reduction in the former kind,” the economist said.
Dr Zaidi Sattar, chairman of PRI, said in his opening remarks at the event that with the good news of a digital economic boom comes the bad news — scams, theft, consumer security and privacy breaches.
“These have also become endemic around the world, with considerable investment being warranted to ensure that e-commerce is a boon to society as living standards rise rather than becoming a digital quagmire for national governments,” he said.
Massive amounts are being invested by corporations and governments in cybersecurity to ensure that e-commerce and DFS are secure from the onslaught of hackers and scamsters, Sattar also said.
When the different types of frauds were examined, the researchers found that “compromised PINs” and “scams involving impersonation” were primary frauds experienced by MFS users, according to the study.
And when faced with frauds, the majority of the users preferred complaining to MFS agents or customer care centres.
Almost two-thirds of the complaints were resolved within a week, while one-third were never resolved. Approximately 56% of the MFS users who faced fraud noted that their complaints were resolved satisfactorily.
Findings also showed that users with higher financial losses had their problems resolved within the first week of complaining.
But complaints that took more than a month to resolve consist of an average financial loss of less than Tk2,000.
The study also noted that the more time is required to resolve complaints, the more likely it is for victims to discontinue using MFS accounts.
Shakila Yasmin, a bKash user who has been a victim of MFS scams, told Dhaka Tribune that the scammers get more dynamic each year.
“The first time I fell victim to a scam, I lost several thousands of takas while claiming a ‘prize’ from a multinational company. Then came the scholarship scam, where they asked for my PIN and sometimes a small deposit of Tk1,000 to avail a scholarship for my children,” she said.
Another user said that both he and his wife received scam calls and messages from the same number the same day.
“It is as if they have data on us and know our exact conditions,” the user said.
What do MFS agents say?
Of the 2,000 MFS agents also surveyed for the study, nearly 13% said they have experienced fraud with their MFS accounts.
The propensity of fraud across agents is substantially higher in the urban areas, the study found.
The average size of financial losses suffered by agents from operating MFS accounts amounted to over Tk18,000, with a maximum loss recorded at Tk70,000.
Agents also blamed “compromised PINs” as the main type of fraud, with the highest financial loss incurred from this amounting to more than Tk20,000.
The study found that while only 38% of the agents had their complaints resolved on the first day of complaining, nearly 45% claimed that their complaints were never resolved.
Moreover, unresolved cases are higher among the agents based in the rural areas, those with less education and amongst those who have received no formal training.
Agents with higher financial losses had their problems resolved within the first 15 days of complaining, whereas complaints that took more than a month to resolve consist of an average financial loss of Tk15,000, the survey also found.
The need for reforms
The threat to consumers is not going to go away, despite the literacy rate increasing or the market maturing, and hence a safeguarding mechanism or an ecosystem needs to be enabled, Dr Ashikur Rahman told Dhaka Tribune.
“In regards to that, the central bank needs to open a single wing under it that monitors the sector empirically to strengthen consumer safety, instead of the task being allocated to three different wings of the central bank- as its highly inefficient,” he also said.
Khandaker Shakhawat Ali, emeritus fellow of Unnayan Shamannay, said at the event that the Payment Systems Department (PSD) that grants licenses to DFS providers should focus more on monitoring the sector for scams and ensuring consumer safety, and also should report suspicious activities to the BFIU.
He also said that a third-party assessment of the sector could also be carried out in collaboration with regulators to identify consumer safety threats and introduce policies and mechanisms to counter them.
Post and Telecommunication Minister Mustafa Jabbar, citing the immense impact of MFS on the informal and non-banked demographic of the country, said: “Only the use of technology can help us counter crimes committed in the technology segment. If services and crimes are being digitized, the protection mechanism has to be digitized too.”
The study suggested that Bangladesh establish a prudent and comprehensive protection framework for DFS to cater to all segments of the financial sector.
Extensive guidelines are required to comprehensively bring all Financial Institutions under one umbrella with specific and detailed regulations that will be equally applicable for all stakeholders in the DFS industry, it noted.
According to PRI, there is a need to establish a single dedicated regulatory authority that will ensure effective safety for the users of MFS across different regions and social groups.
It also suggested that the government introduce a comprehensive Digital Financial Literacy Strategy by conducting training on financial literacy for the vulnerable communities and regions throughout the country.
More investment is also required in the recruitment, training and management of agents for the successful deployment of MFS in both rural and urban regions, the study observed.
Planning a collaborative effort by the government agencies, NGOs, providers of MFS and other relevant organizations to organize awareness raising campaigns periodically could also help address the security concerns, the study also noted.
Kamal Quadir, the CEO of bKash, said that although they had been asked by the regulator to ensure consumer safety through awareness, this had never been enforced.
“bKash has been taking a lot of initiatives to ensure consumer safety and raise awareness amongst the consumer, however, it is an industry problem and it alone should not be addressing the matter,” he said.
Sonia Bashir Kabir, founder and managing partner of SBK Tech Ventures and SBK Foundation, pointed out that the local consumers depend on others in the management of money, such as agents, which itself is a risk factor.
“Hence, digital literacy and financial literacy are very important,” she added.
She also pointed out that banks have equal responsibility in addressing frauds and scams and should not hold the financial service provider or operator liable for returning the money to the consumer as banks themselves are the settlement account holders.
Among others, Dr Najmul Hossain, country representative of Friedrich Naumann Foundation for Freedom (FNF Bangladesh); Dr Ahsan Mansur, executive director of PRI; M Sahab Uddin Shipon, vice president of the e-Commerce Association of Bangladesh; and Wolfgang Heinze, country director of Friedrich-Naumann-Stiftung für die Freiheit for Sri Lanka and Bangladesh, also spoke at the event.
