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Nigeria has taken a new stance in the fight against Point-of-Sale (POS) terminal fraud. The Corporate Affairs Commission has instructed all individuals and Point of Sale operators in the country to register their agents, and merchants with the commission on or before July. This decision was made after the Registrar-General/Chief Executive Officer, CAC, Hussaini  Magaji, SAN, had a meeting with some fintech companies at the beginning of the week. According to the CAC via its X( formerly Twitter) handle, the goal is to reduce POS fraud and encourage transparency, ultimately safeguarding the businesses of fintech customers and strengthening the economy. How effective will registering POS operatives with the CAC be in cracking down on fraud? 

The spotlight on POS fraud

Nigeria has a rising POS fraud problem. Last year, the Nigeria Inter-Bank Settlement System Plc (NIBSS) revealed that POS terminals accounted for 26.37% of fraud incidents. The modus operandi of fraudsters involved in this nefarious practice often includes a variety of tactics. One of the common methods is called card swapping. This consists of a scammer pretending to be helpful to a confused customer. During this interaction, the scammer might quickly switch the customer’s debit card with a similar-looking one they already have. While the customer is distracted, the scammer can memorize the PIN used or steal the card. Card swapping can happen at any service delivery point. Then there is skimming. This involves a scammer installing a small, undetectable device on the ATM card reader. This device steals your card information when you insert your card. With this stolen information, they can create a copy of the card and use it to make unauthorized transactions, draining the account quickly.

Another growing threat is POS Malware. This type of malware infects the terminal, allowing the scammer to access sensitive information such as card numbers, expiration dates, and security codes. The information can then be used to make unauthorized transactions or sold on the black market. Interestingly, this rise in POS scams can be linked to the increasing use of digital transactions. Last year, when the country faced a cash crisis, many Nigerians switched to electronic payment channels to perform transactions. The NIBBS reported that 108.135 million transfers were made in January, representing a 237% increase compared to the 32 million recorded during the same period in the previous year. There are currently 1.9 billion POS operations in the country. However, As more people embrace the convenience of digital transactions, the opportunities for scammers to exploit the system grow. Last year, the Economic and Financial Crimes Commission raised an alarm at the rate of unauthorized withdrawals from bank accounts of customers. Nigeria lost a total of N1.95 billion to POS fraud in one year.

Can the CAC deliver?

In Nigeria, the CAC is in charge of company registration and regulation. The body facilitates the incorporation and registration of new businesses in Nigeria. This includes processing applications, issuing Certificates of Incorporation, and maintaining a central register of all companies operating in the country. According to section 863, subsection 1 of the Companies and Allied Matters Act, CAMA 2020, “A person or association of persons shall not carry on business in Nigeria as a company, limited liability partnership, limited partnership, or under a business name without being registered under this Act.” Registering POS operators also aligns with the 2013 Central Bank of Nigeria’s guidelines, on agent banking. 

Having a CAC registration creates a database of legitimate POS operators. Registration can bring POS operations under the CAC’s regulatory umbrella. This could lead to stricter guidelines and compliance checks, potentially deterring fraudulent practices. It can also aid investigations by providing a clear trail to identify fraudulent activity and hold bad actors accountable. A central register of POS operators allows for greater transparency within the industry. Customers can verify the legitimacy of a POS terminal before carrying out transactions, reducing the risk of falling victim to scams.

The efficiency of the CAC is also questionable. Last year, we uncovered how scammers go to great lengths, setting up fraudulent business sites complete with CAC certification and online bank accounts. Also, registration primarily addresses the identification of operators, not their intent. Criminals may still find ways to infiltrate the system or exploit loopholes. Hence, the effectiveness of registration hinges on robust technology to track POS activity and efficient enforcement mechanisms to penalize offenders. While CAC registration is a step in the right direction, it’s likely to be just one piece of the puzzle. Nigeria has a cybercrime challenge. Nigerian financial institutions have reported N159 billion ($201.5 million) losses to fraud since 2020. Nigerian banks lost N2.09 billion to fraud in 2023.  

Moreover, fraudsters adapt their tactics to exploit vulnerabilities in POS systems and digital payment methods. As traditional scams become more easily recognized, criminals develop new methods to stay ahead of law enforcement and consumers. This is especially true in times of economic hardship as it is usually a driving force for innovation in the criminal world. In March 2024, inflation reached a staggering 33.2%, further pressuring the already fragile economy. The mandatory registration of POS operators with the CAC is a step in the right direction. It suggests that the government is paying attention to the alarming fraud rate. However, Nigeria’s fraud problem might require more than a registration requirement.