Cyber crime and loan caps test for bankers

Equity Bank Group CEO James Mwangi at a past conference. PHOTO | DIANA NGILA | NATION MEDIA GROUP

What you need to know:

  • Added to the law putting a ceiling on interest rates, financiers must now tread a thin line if they were to avoid heeling over.
  • Instead of targeting banks directly, cyber criminals are now setting their sights on payment systems and mobile money service providers to access bank systems.
  • The latest scare occured last week when claims emerged that KCB had its systems breached.

To say that Kenya’s banking industry is going through a rough patch would be an understatement.

A number of innovations that now allow mobile money services to be used as an alternative to traditional platforms have opened new avenues for cyber criminals.

Added to the law putting a ceiling on interest rates, financiers must now tread a thin line if they were to avoid heeling over.

Instead of targeting banks directly, cyber criminals are now setting their sights on payment systems and mobile money service providers to access bank systems.

The latest scare occured last week when claims emerged that KCB had its systems breached.

KCB Group, however, dismissed claims of a data breach in one of its systems, terming them unfounded.

The NSE-listed lender said all the bank’s systems, including its mobile applications, are water-tight.

“We wish to assure all our customers that our platforms and data are highly secured. ….There is no breach to our systems,” said the lender in a statement on Friday.

The bank was responding to claims of a data breach made in a news report quoting a Burundian hacker Chris Irakoze.

In comments published by a technology website, iAfrikan, the Burundian national is quoted as saying that KCB may have suffered with the details of more than 500,000 customers, including their names and phone numbers, appearing online.

Earlier in the week, KCB Chief Risk Officer Rose Kinuthia had said disruption in the sense of the innovations pipeline being busy is the new challenge for lenders.

Speaking during The Actuarial Society of Kenya (TASK) Convention in Nairobi, Ms Kinuthia noted that the banking sector must continue to safeguard itself from emerging risks in the sector such as fraud and cybercrime.

Actuaries — professionals who measure and manage risks and uncertainties — were asked to diversify their skills in order to solve problems troubling the financial sector.

“We should prudently react to current and upcoming changes across the industry and help solve the current problems being faced,” said Mr James Olubayi, executive director at Alexander Forbes Group in Kenya.

Since September 14, when the Banking (Amendment) Act 2016 became operational capping interest rates at four percentage points above the Central Bank Rate (CBR) and deposit rates at 70 per cent of CBR, financiers are adopting more efficient systems such as mobile money, and agency banking.

Equity Bank, for example, has frozen opening of physical branches and opted to go digital in service delivery. In most cases customers will only need to have a mobile phone to carry out nearly all their banking transactions.

Credit bureau referencing is also maturing with the sharing of both positive and negative data, all which should contribute to lower charges.

The problem has, however, been that they are sharing only defaulters and that despite their being in business for some time, not much has been happening in terms of lower lending rates.

This could perhaps have led to the push for controlling the cost of credit.

Alexander Forbes in The Report Kenya 2016, indicates that by and large, banks favour mobile and agency growth rather than rolling out Automated Teller Machines (ATMs) and branches.

“Banks will continue to favour technology-fuelled growth, as the lowest cost mechanism for service delivery,” the firm said in the report.

According to PwC in the 2016 Global Economic Crime Survey: Kenya Report, the perception of risk through cybercrime is increasing.

This could be because the advancement of technology in business services, combined with a rapid growth in data connectivity and social media have altered business landscape.

“New threats presented by digital communication and hazy regulation with respect to cybercrime in an increasingly integrated world means organisations have to come up with more innovative ways to deal with these threats,” read the report.

The report suggests investing in systems to combat economic crimes. It says this needs to go hand in hand with pumping money in people who are entrusted with the assets and systems in these organisations.

PwC says as has been experienced, the cost of not investing in improving the environment in terms of systems, training the workforce and continuously having in place fraud risk management framework to both deter and deal with fraud and other forms of economic crimes can be far greater than the short-term savings obtained in cutting costs and hoping for the best.

Last week, Equity Bank unveiled a suite of digital products titled Eazzy Banking, stating that customers’ banking trends have pronounced the death of the bank branches as transaction channel, as they increasingly embrace self-service technology platforms that give them freedom, choice and control.

“Customers have demonstrated the extinction of cash, preferring to transact with digital money, which is safer for transactions and more hygienic than bank notes. In response to these trends that we have been observing from our customers, we have reinvented ourselves into a digital bank to respond to their needs, in line with our promise as their listening caring partner,” said Equity Bank Chief Executive Officer James Mwangi.

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