Ruling serves Safaricom dilemma over customer losses on M-Shwari platform

M-Shwari posters

M-Shwari posters at a bus stage in Nairobi. Safaricom has been ordered to pay a customer Sh452,869 that he lost to fraudsters who hacked his M-Shwari account. 

Photo credit: File | Nation Media Group

Ronald Wilson Kafwa’s mobile phone was stolen on October 10, 2021, and he promptly called Safaricom customer care asking the operator to disable his M-Pesa account.

But because he was subscribed to the ‘advantage hybrid Tariff', his request could not be processed immediately and was advised to visit the nearest retail centre, where he would be assisted.

Later in the day, he visited Safaricom’s retail store on Moi Avenue, and since he did not have his identity card with him, he was told to get a police abstract. By then, the thieves had managed to withdraw Sh298,812 from his M-Pesa account.

Mr Kafwa later presented the police abstract and the SIM card was blocked at around 2 pm.

The following day, he requested the unblocking of his SIM card and discovered that an additional Sh116,505 had been withdrawn from his M-Shwari account. He further asked for the SIM card to be blocked a second time.

Sued Safaricom

He sued Safaricom demanding a refund of Sh751,680, which was withdrawn from his M-Pesa account, following the loss of his mobile phone.

According to the customer, he took all the necessary steps to block all the transactions but the mobile phone operator let him down.

After hearing the case, Nairobi resident magistrate Velniah Mochache found that Mr Kafwa was responsible for the loss of Sh292,812.

The magistrate further ruled that Safaricom was responsible for the loss of Sh452,869, which the court directed the telcos to refund the customer plus costs of the case and interest.

Safaricom appealed against the decision, arguing that the customer was negligent and must have shared out his personal identification number (PIN) with third parties.

The telcos further submitted that the M-Pesa statement revealed that the Sh418,331 was withdrawn from Kafwa’s M-Shwari account, whose Terms and Conditions state that Safaricom is not responsible for ensuring its security as this service is provided by NCBA Bank to its customers.

According to Safaricom, it does not jointly or otherwise operate the M-Shwari product or its security protocols, and consequently, it bore no responsibility for third-party products that are linked to its M-Pesa service as indicated in its terms and conditions.

The court was informed that as regards M-Pesa terms and conditions, the customer is responsible for keeping his PIN confidential to ensure that only he could initiate transactions.

That country’s largest mobile operator argued that Mr Kafwa’s disclosure of his PIN established as a factual finding by the trial court should have absolved it from liability.

Mr Kafwa opposed the case, arguing that he promptly discharged his duty of care by reporting to Safaricom when his phone was stolen, and instructed the company to block his telephone line and M-Pesa account.

He said that by the time he reported the loss of his phone to Safaricom, Sh298,812 had already been withdrawn.

He further said that the moment he physically presented himself to Safaricom’s customer care centre to report the theft, and instructed the telcos to block his telephone line and M-Pesa account, the duty of care shifted to the firm to block the line.

However, Safaricom maintained that the trial court disregarded the fact that Mr Kafwa’s SIM card was not blocked at first instance because he did not have his original identification card when he initially made the request at the retail centre.

The operator submitted that it acted prudently by requiring a police abstract to verify Mr Kafwa’s identity and ownership, and promptly blocked the SIM card once he provided it.

The subsequent unblocking and transactions on the mobile account were done after further verification of his identity and ownership, Safaricom said, adding that the theft of the mobile phone is what led to the compromise of the security of his account, which was in no part occasioned by the firm.

The court was informed that due to interference by a third party, losses were incurred, but this should not have been attributed to Safaricom.

The telco closed its appeal arguing that there was no breach of duty and no damages were attributable to the actions of the customer.

In a judgment last month, Justice Asenath Ongeri dismissed the appeal, stating that Safaricom’s involvement was indispensable, whether there was third-party involvement or not.

“The appellant owed the respondent (Kafwa) a fiduciary duty of care to act with diligence after the respondent reported the loss of this telephone and took all the necessary steps to have all the transactions blocked,” the judge said, adding that Safaricom was responsible for the loss incurred by the customer.

The judge, however, agreed with the trial court that the customer was responsible for the loss of money which was withdrawn before he reported the matter to the police.

“I find that the respondent took the necessary steps to bring the issue to the knowledge of the appellant. There is no evidence that the respondent disclosed his pin to 3rd parties or that he was involved in the fraudulent withdrawals,” the judge said.

Safaricom is facing two suits after customers who fell victim to SIM swap fraudsters sued the telco. The case was filed last year by Abdi Zeila who claims to have lost nearly Sh500,000 through the scam on March 28, 2022 after fraudsters withdrew Sh373,000 from his bank account at NCBA, which is linked to his mobile phone, took a mobile loan of Sh66,440, another Sh24,000 from KCB-MPesa, and a Fuliza loan of Sh12,000.

Four other people, among them a widow whose husband ‘borrowed’ loans using his mobile phone from the grave, have since joined the suit filed against Safaricom and the Communications Authority.