According to a fraud report by Smile ID, Nigeria’s national ID card ranks ninth in the list of documents most frequently used for verification fraud in Africa. The report is the result of data derived from over 100 million identity verifications performed by the company between 2021 and 2023.
National IDs, being the most commonly used document for identity verification, are often the go-to choice for fraudsters in Africa. The yearly report released by Smile ID, an African identity verification start-up, is based on identity checks conducted throughout the continent in 2023.
Since its inception in 2017, Smile ID has conducted over 100 million checks in Africa, and its database has thereby been used to gain insights into fraudulent verification attempts across the continent. One such insight is that fraudsters predominantly use national IDs over passports, driving licences, and other identification documents for identity fraud. This accounts for 80% of total fraud attempts utilizing document-based verification.
The report highlighted that national IDs are used most frequently in identity fraud because they are the most common form of government-issued identification in many African countries. Their prevalence makes them more susceptible to being lost or stolen, providing a possible avenue for fraudsters to exploit.
Interestingly, Smile ID’s 2024 Digital Identity Fraud in Africa Report determined a ranking for countries based on the number of fraud attempts using their national IDs. Nigeria placed ninth, with a fraud attempt rate of 18%.
South Africa’s national ID topped the list with the most fraud attempts at 38%. This was followed by Tanzania, which came in second at 32%, Kenya in third place at 26%, and Uganda ranking fourth with 25%.
In 2023, which African countries reported the highest rates of fraud?
Central and East Africa recorded the highest rates of identity fraud in 2023 among the four regions – East Africa, West Africa, Central Africa, and Southern Africa – analyzed in the report. Both regions saw a surge in fraud rates with Central Africa at 29% and East Africa at 30%.
Southern Africa’s reported identity fraud peaked at 23%, while West Africa documented the lowest fraud rate at a peak of 20%.
The report’s in-depth assessment of fraud patterns across the continent indicated a rise in fraudulent activities starting approximately at 6 p.m., with a peak at 9 p.m. Also, fraudsters were reportedly more active on Mondays and Wednesdays.
Which sector experienced the highest number of verification fraud attempts?
Although there wasn’t an extensive discrepancy in identity fraud rates across different industries in 2023, the financial sector observed a peak in fraud rates in October. Notably, it also saw the highest fraud rates in the previous year, 2022. Within the financial industry, the buy now pay later (BNPL) sector specifically witnessed the highest rate of biometric fraud.
Nevertheless, payment platforms recorded the highest number of fraud attempts in 2023, peaking at 43% in January. Following closely were savings and investment platforms with the second-highest rate, reaching a peak of 24% in October.
Buy Now Pay Later (BNPL) platforms, which had the highest fraud rates in 2022, recorded a spike at 18% in fraud rates in April 2023. The year 2022 witnessed a significant surge in both usage and investment in BNPL startups. Sectors that previously received little to no funding, for instance, saw startups like Kenya’s Lipa Later raising $12 million in a pre-Series A round and Nigeria’s Klump raising a $780,000 in a pre-seed round in 2022.
CredPal even established a partnership with Bolt to introduce a ride-now-pay-later option for riders. The considerable increase in the use of BNPL platforms can be attributed to the low credit accessibility in Africa, as per Eric Muli, CEO of Lipa Later. BNPL makes it easier for ordinary Africans, who are not part of the select few, to quickly and conveniently gain access to credit.
While this ease might have stimulated a usage explosion of BNPL platforms, leading to a subsequent rise in fraud rates, there’s no evident explanation for the increase in fraud rates on payment startups.
However, some payment startups did have challenges, with Flutterwave experiencing a ₦2.9 billion hack and Interswitch losing ₦30 billion to chargeback fraud.
Curbing Identity Fraud in Africa
Smile ID’s report primarily focused on biometric and document verifications and discovered that businesses using textual verification are four times more susceptible to breaches by fraudulent individuals compared to organizations that employ biometric authentication.
Integrating both verification methods makes it more challenging for fraudsters to manipulate the system. Ideally, an identity verification system should be able to confirm that the ID provided is an original copy issued by the appropriate authority and authenticate that the document is presented by its rightful owner.
Nevertheless, the emergence of generative artificial intelligence could potentially assist fraudsters in passing biometric checks. Despite this, Smile ID points out that AI models are being developed to detect anomalies in synthetic media.
