Opening of Mobile Financial Service (MFS) accounts by some unscrupulous operators without maintaining mandatory KYC (Know Your Customer) form filled in by account holders is likely to derail Bangladesh’s journey towards a cashless society and the digitalisation, experts said.
As the incidents of mobile banking frauds are escalating day by day, experts said that some recent unlawful incidents by some MFS providers by opening customers’ accounts in a short-cut manner by ignoring regulatory compliance may erode consumers’ trust on MFS innovations affecting the financial inclusion.
With increasing adoption of mobile, debit and credit cards, the country has leapfrogged into a mobile innovation powerhouse in order to jump start economic development in line with the government’s vision of digital Bangladesh.
The MFS leads the digital economy to a society of cashless transactions and accelerate the journey towards a country of no paper currency.
Some local MFS operators are allegedly opening millions of accounts without proper implementation of KYC protocol enforced by Bangladesh Financial Intelligence Unit (BFIU) and not validated by Bangladesh Bank, the regulatory authority for the banking and MFS sector.
“Such accounts may open doors for fraudsters and criminals to steal money from innocent consumers, which will discourage people to cashless transactions. MFS accounts without KYC rules pose risks of money laundering and terrorist financing”, said a central bank official.
KYC is a mandatory rule for banks and MFS operators to ensure that financial service professionals authenticate and assess the identity, suitability and risks involved in maintaining a business relationship with a client. Account operations by unidentified customers may allow fraudsters to steal money from others’ accounts and help criminals launder money for financing terrorists.
To avoid risks of frauds, as per Bangladesh Bank guidelines, MFS operators must follow all KYC Protocols and required to periodically update the KYC records. KYC process is a combination of some programmes like Customer Identification Program (CIP), Customer Due Diligence and ongoing monitoring in the KYC process.
“Some MFS operators are opening MFS accounts based on photo copy of NID submitted through their own network channel and on the basis of list provided by mobile network operators that do not comply with the KYC rules. Any criminal can open an account in the name of an innocent people”, Fakhruddin Ahmed, a security expert said.
Besides, the MFS accounts opened on the basis of customers list provided by mobile network operators is not safe and secured for MFS transaction as criminals can easily buy SIM cards with NID documents of others. The photo of the customer submitted online is not enough to know who is actually transacting, he added.
“If KYC document is not in place, any person can do any financial crime through the acquired MFS account. The rising fraudulence incidents in MFS landscape may discourage people to use digital channels, which will hit financial inclusion and the vision to become a less cash nation”, the expert warned.
A leading MFS operator is alluring people through media campaign to open account within a few seconds, which may allow fraudsters to open MFS account for criminal purpose. Security experts termed this process as too risky and warn that globally mobile banking fraud is rising alarmingly and MFS accounts should be under regulatory scrutiny.
“There is no way to open a MFS account within a second as KYC information must be validated by the regulatory authority”, a senior banker working in a leading commercial bank said. “All KYC formalities must be completed to avoid any disaster in MFS industry which process billions of taka a day mostly by poor and low income people.
Globally, online fraud attacks rose 250 per cent over the course of 2020 as the pandemic pushed people to digital banking. In addition, attempted fraud increased by 200 per cent in mobile banking and 250 per cent in online banking between the first and fourth quarters, according to the recently published Feedzai Financial Crime Report.
One of the key reasons behind the rising trends of frauds is account opening without regulatory compliance. Other reasons are lower level of financial literacy and weak technological infrastructure and weak regulatory oversights.
Bangladesh, like many other countries, is moving fast towards a cashless society with its digital Bangladesh vision, thanks to the robust growth of the MFS industry. Today, mobile money operators are processing over a billion of dollars a day, representing vital and life-sustaining transactions of over 690 million mobile money accounts.
Millions of young consumers are avoiding cash and using cards to buy foods in restaurants, pubs and shopping malls, which has pushed up e-commerce and cashless transactions day by day. The coronavirus pandemic has accelerated this move by upending the supply and demand markets.
Experts said the top risk for the Bangladesh government is that transaction through unregulated MFS channel may pose risks of money laundering and terrorist financing, which ultimately will hit the economic growth of the country and digital Bangladesh vision.
To mitigate risks and frauds in mobile banking, strict enforcement of the regulation is urgent, they added.
BK