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Fraud Prevention 26 Oct 2023

How to Detect and Prevent Fraud When Scaling Your Business Across Africa

Peace Itimi

Director of Marketing

Fraud poses a significant problem for businesses, particularly those expanding across Africa. The continent's diverse cultures and economies make implementing universal fraud prevention measures challenging. Furthermore, the absence of reliable identity data in Africa complicates the verification process for businesses, leaving them vulnerable to fraudsters.

Despite these challenges, businesses can adopt measures to reduce the risk of fraud when scaling operations in Africa. This article emphasises the importance of identity verification solutions in preventing fraud in Africa. It also provides valuable tips for businesses to detect and prevent fraud while expanding across the continent.

Identity fraud trends in Africa

Smile ID’s 2022 State of KYC in Africa report shows a 28% increase in fraud rates across the African continent in 2022 compared to the previous year. The report analysed approximately 50 million Know Your Customer (KYC) checks. As your business expands across Africa, staying informed about the latest identity fraud trends is crucial. With the prevalence of online interactions in consumer behaviour, fraudsters have greater opportunities to disrupt your business. 

Here are some of the top identity fraud trends to be aware of: 

Fake ID documents

Fraudsters commonly use fake or forged ID documents to game a product’s onboarding system. Using forged ID documents, fraudsters can create accounts under fictitious identities, facilitating the theft of ill-gotten gains. Depending on how skilled the fraudster is, forged documents can closely resemble the original, allowing them to bypass basic evaluations and eye tests. 

Smile ID’s Document Verification product effectively detects fake IDs by comparing the submitted documents to their authentic templates. This process scrutinises intricate details such as fonts, spacing, holograms, microtext, QR codes, barcodes and watermarks that are challenging to imitate, ensuring fraudulent users are identified and stopped.

Stolen ID information/identity theft 

At Smile ID, we find that most fraud attempts involve using stolen IDs. This type of fraud occurs when someone steals another person's personal information, such as their ID document or ID number, and attempts to use it to register for a service. A fraudster might use a stolen credit card number to make unauthorised purchases or open new accounts in the victim's name. As these IDs are genuine, a basic KYC check (focusing solely on textual validation) might mistakenly approve them. 
There are a few more specific identity theft trends we see:

  • Social engineering fraud: This type of fraud involves tricking individuals into revealing sensitive information or performing actions that benefit the fraudster. Fraudsters may use social media or phishing emails to gain the trust of their victims.
  • Account takeover fraud: This fraud involves gaining access to a legitimate account and making unauthorised transactions. Fraudsters may use stolen login credentials or take advantage of weak authentication methods.

Smile ID’s Biometric KYC solution effectively counters such attacks by comparing user-submitted selfies to official ID photos or documents, swiftly identifying and blocking discrepancies. This process ensures that the person interacting with the service is the legitimate ID holder. This critical component of identity verification extends beyond merely validating the legitimacy and authenticity of an ID or document.

Selfie “spoofs”

More sophisticated scammers with stolen IDs attempt to pass themselves off as the owners of the documents. One way they do that is through a "selfie spoof," where a person uses a photo to impersonate someone else. This can include using a picture of a printout, a saved image or video from a device, a printed face mask, or even a lifesize cardboard cutout. These spoofs are commonly referred to as "cheap fakes." While similar behaviour may result from genuine user error, such as not following instructions or not understanding the process, spoofs often indicate a fraudster's attempt to impersonate another person.

Smile ID’s liveliness checks ensure that the selfie submitted is a live image of the individual and not a pre-recorded video or photograph.

Duplication fraud

Fraudsters duplicate accounts by exploiting reward systems. Such schemes target growth incentives like sign-up bonuses. Two types exist - "Serial Submitters" repeatedly use their own IDs, mitigated via usage caps, while "Database Infiltrators" can create thousands of fake IDs, posing greater risk.

Only biometric deduplication detects Infiltrators by comparing faces, as their documents circumvent checks. Deduplication uniquely surfaces repeat enrollments regardless of submitted credentials.

At Smile ID, we have seen a user attempt to sign up nearly 300 times with multiple valid IDs. Our biometric de-duplication product, Smile Secure, could identify and surface these repeated attempts.

Synthetic fraud

This happens when fraudsters create a  new identity by combining real (usually stolen) and fake information. Synthetic fraud is usually more difficult to catch, especially when using only textual verification, as scammers can add a stolen ID number to a falsified document template to fool KYC systems. 

While synthetic fraud attempts have typically been low across Africa, recent advancements in AI technology make it a real threat to businesses. Using AI image and video generators, scammers may be able to combine real ID information with forged document templates and deep fake biometrics to evade customer verification procedures.

Combining Document Verification with Liveliness Checks can detect this kind of fraud, as we can spot discrepancies in fake ID documents that natural observers cannot catch. 

Business registration fraud

B2B businesses also deal with their fair share of fraud. A prevalent tactic fraudsters employ involves utilising fake or compromised business registration details to game onboarding systems and create fictitious accounts. This type of fraud can lead to considerable financial losses and undermine user trust if not addressed. Financial services and e-commerce companies are typically the primary targets of such schemes.

Verifying business registration details is a crucial component of our Know Your Business (KYB) solution. This encompasses validating the business name, address, tax information, and identity data of directors, shareholders, and other relevant stakeholders, ensuring a secure and trustworthy environment for all parties involved.

Challenges in detecting and preventing fraud in Africa

Fraud detection and prevention challenges in Africa stem from various factors:

  • Lack of reliable identity data: The absence of trustworthy identity data hinders customer and employee verification, leaving businesses susceptible to fraud.
  • Weak regulatory environment: Some African countries have inadequate anti-fraud regulations, posing business compliance difficulties and providing fraudsters with opportunities to operate unchecked.
  • Corruption: Widespread corruption obstructs fraud reporting and discourages law enforcement agencies from investigating such cases, compounding the problem.
  • Low levels of financial literacy: Limited understanding of fraud types and protection measures among the population increases vulnerability to fraudulent activities.
  • Limited resources: Many African businesses face resource constraints, impeding their ability to invest in robust fraud prevention programs.

These challenges collectively contribute to the complexity of detecting and preventing fraud in Africa.

Robust identity verification solutions to prevent fraud in Africa at scale

When scaling your business across Africa, one of the most important things to consider is how to prevent fraud. A critical component of fraud prevention is robust identity verification solutions.

Identity verification is the vital process of ensuring that a person is who they claim to be when opening a bank account, applying for a loan, or other financial processes. Though identity verification is an important security measure in combatting new account fraud, It also plays a role in Know Your Customer (KYC) and anti-money laundering (AML) efforts at financial institutions that assess and monitor customer risk.

There are many identity verification solutions available on the market today. Some include:

Document verification: This solution involves verifying government-issued IDs, passports, and other official documents to ensure they are legitimate and belong to the person presenting them. These solutions typically use a combination of optical character recognition (OCR) and artificial intelligence (AI) to scan and analyse the document for any signs of fraud.

Smile ID’s document verification solution checks the authenticity of a document and compares the document photo to a selfie, and enables you to verify over 8,500 documents across 226 countries globally. We also have true depth of coverage in Africa, supporting at least 3 document types for every African country. 

Biometric verification: Biometric verification involves using unique physical characteristics, such as fingerprints or facial recognition, to verify a person's identity.

Some of the types of biometric verifications are:

  • Fingerprint verification: Fingerprint verification solutions compare the individual's fingerprints to a database of known fingerprints.
  • Facial recognition: Facial recognition solutions compare the individual's facial features to a database of known facial features.
  • Voice recognition: voice recognition solutions compare the individual's voice to a database of known voices.

In recent years, biometrics verification has emerged as a potent tool for combating fraud, particularly as criminals increasingly find ways to obtain or fabricate valid ID numbers that can pass conventional text-based ID verification. 

Biometric traits are unique to individuals, making them difficult to replicate or forge. Unlike passwords, which can be forgotten, stolen, or shared, biometric data is inherent to each person and remains constant.

Liveness checks : Strong anti-spoofing complements biometrics to ensure customer security. While sophisticated "deepfakes" are uncommon in Africa, simple deceptions like photos and masks persist. Liveness checks prevent such low-cost fakes, instilling robust onboarding trusted by users and developers.

Many apps incorporate liveness detection by capturing a short video or a quick succession of frames and audio during registration. Specialised algorithms process the visual and audio data, generating a confidence score to verify if a real human was present during image capture. Human review and labelling further refine the algorithm through training.

Smile ID has been developing face recognition and liveness solutions since 2016. Our trademarked technology, SmartSelfie™, employs six AI-based models and is supported by real-time reviewers who label thousands of images daily for machine learning. SmartSelfie™ powers our mobile and web solutions.

Face deduplication: Fraudsters creating multiple accounts to exploit promotions or loans commit duplication attacks. While altering identities remains difficult, abusing numerous generated credentials persists. Biometric de-duplication powerfully prevents replays through vast one-to-many searching. It scrutinises joining applicants against extensive onboarding histories regardless of details, uncovering any repeat faces.

Smile ID's real-time Smile Secure stops organised code targeting. Notified seconds after scanning new selfies against over 1.7 million pre-catalogued visages, it shields promotions from deception across borders and ID types. Provably flagging 1.7M duplicates cements its potency safeguarding services.

AML check / database verification: This solution involves checking a person's information against a database of known fraudulent identities to identify potential fraudsters. 

Crucial compliance, like identifying politically exposed persons through AML due diligence, helps screen clients against watchlists and filters for risk of sanctions and actions requiring close monitoring. Blocking or extra due diligence safeguards services by identifying potential threats. AML checks effectively prevent fraud by comparing user details to sanction lists and assessing risk levels.

Smile ID's fast AML Check screens customers against over 1,100 global sources, flagging politically exposed persons or adverse media within seconds to evaluate associated risks and support efficient diligence decisions.

Knowledge-based authentication (KBA): KBA Solutions verifies an individual's identity by asking them to answer questions about their personal information or financial history. These questions are typically based on information that is difficult for fraudsters to obtain, such as the individual's date of birth, Social Security number, or mother's maiden name.

When choosing an identity verification solution, it is important to consider factors such as cost, ease of use, and accuracy. Some solutions may be more expensive than others, but they may also offer greater accuracy and ease of use. It is important to weigh the pros and cons of each solution and choose the one that best fits your needs.

How to choose an identity verification solution

When detecting and preventing fraud, choosing the right identity verification solution is crucial for your business. With so many options available on the market, it can be overwhelming to pick the right one. Here are some factors to consider when choosing an identity verification 

  • Accuracy - Depend on solutions leveraging AI/machine learning to validate identities and flag anomalies, ensuring confidence precisely.
  • Global coverage - Verify identities across multiple regions/countries as your business scales continental.
  • Compliance - To avoid issues, select solutions compliant with KYC and AML regulations in your target markets.
  • Experience - Identity checks frustrate customers if they are complex or slow. Find swift, simple solutions verifying identities without excessive demands to maintain seamless, friendly experiences.

Zero in on solutions proven to delicately balance security, convenience and growth uniformly according to your unique needs.

How Smile ID’s identity verification solution can help your business prevent and detect fraud

Smile ID is Africa's leading identity verification solution, enabling businesses to verify identities instantly with unparalleled accuracy and fraud prevention capabilities. You can easily combine ID document verification and facial biometrics with fraud risk signals, such as AML checks and duplicate user screening, to help you accurately verify users, detect and prevent fraud and make informed decisions about your customers.

  • We boast of a 2-second average verification time.
  • 99.9% Accuracy rate across all skin tones for Africans.
  • On-ground experts across Africa to handle regulatory complexities for you.
  • 100% Country coverage in Africa
  • Access to 3 or more ID types in most African countries
  • The ability to go live with a single integration across all the markets we cover.

Wrapping up
Detecting and preventing fraud is critical when scaling your business across Africa. By implementing the strategies outlined in this article, you can protect your company from financial loss and reputational damage. Remember to:

  • Conduct thorough background checks on employees and partners and establish clear financial transaction policies.
  • Regularly review accounting records for irregularities or inconsistencies.
  • Stay educated on the latest fraud trends and techniques, and utilise fraud prevention technologies like Smile ID.
  • Act swiftly if fraud is encountered. Document evidence, report to authorities, and seek assistance from legal and financial experts to recover lost funds and prevent further harm to your business.

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