Rate of MFS fraud victims is higher among the highly educated

Last week a survey conducted by the leading think tank Policy Research Institute of Bangladesh (PRI) showed that one in every 10 Mobile Financial Service (MFS) users fall victim to some form of fraud. 

The survey was based on nearly 7,279 randomly selected consumer data points across 45 districts. Dr Ashikur Rahman, an economist at PRI, who spearheaded the survey along with Azmina Rede, believes that this figure is alarming and said that due to the fraud, millions are losing money. 

The Business Standard spoke to Dr Ashikur Rahman to learn about the consumers' safety issues with mobile financial services.  

Dr Ashikur Rahman. Illustration: TBS

What did you find in the study and what is your observation on consumers' safety in the MFS industry in the country? 

The main purpose of our study was to understand the magnitude of fraudulence in the MFS sector. You know the MFS sector is a rapidly growing industry that is now at an exponential phase. In January this year, Tk73,000 crore was transacted through MFS. If the trend continues, the figure will cross 100 billion dollars at the end of the year, a very substantial number. 

Our finding has shown that now 55 percent of people use MFS and 45 percent of people do not use MFS. 

Among people who do not use MFS, 66 percent said they do not need it. On the other hand, 32 percent of them said that they do not use it for fear of being deceived. That is, one-third of the people who do not use MFS, don't out of fear of being cheated on. 

Another survey was conducted in 2020 on consumers of the e-commerce sector and it was found that 11 per cent of e-commerce customers fell victims to fraud. We have found that 10 percent of MFS users fall victim. There is a similar pattern among the two sectors and the figures are very close.

There are two categories of people who are using MFS – consumers and agents. As one in 10 people is falling victim to fraud, millions are losing money since there are around 4 crore active users.  

There is an assumption that women are more prone to fall victim to such fraud. Is that true?

We did not find evidence to back that in our findings. The rate of  victimhood between males and females is nearly equal. The rate stood at 9.2 percent in male users and 9.4 per cent in female users. There was no significant difference in the cases of fraud in rural and urban settings. 9.2 percent of rural consumers and 9.4 percent of urban consumers fell victim to fraud. 

But there is an interesting finding that is the rate of victims of fraud is higher among highly educated users. 16.4 percent of users having a master's degree fell victim to fraud, while the rate of victims with secondary education background is 7.3. 

I think the reason may be that highly educated people use MFS more. Or it may be that formal education and digital financial literacy are not the same thing. You may be highly educated, but you may not have digital financial literacy. 

Like consumers, MFS agents also face fraudulence. We have got three interesting scenarios. In the urban area, one in five is an agent facing fraud. On the other hand, in rural areas, one in 10 agents encounters fraud. That is, the agents in urban areas are more vulnerable. 

We have seen that on average a single MFS user has lost Tk9,000. On the other hand, an MFS agent, on average, has lost Tk18,000. We have not seen that difference between the rural and urban areas. But the amount of loss is higher in Dhaka. 

What is the most common method of fraud in mobile financial services in our country?  

The highest form of fraud happened in the form of compromised PINs and scams involving impersonation. That rate is 56 per cent. 

Now, compromised PINs are a grave problem for different reasons. The main reason is the lack of digital financial literacy, sharing PINs with relatives and agents and sharing PINs with someone personifying as officials. In short, there is a huge lack of awareness among MFS users and agents.

The most interesting point we have noticed is when people complain of being defrauded. 30 percent of MFS consumers who complain do not find the solutions. On the other hand, 45 percent of all agents who complain never find solutions. As a result, they never get their money back. 

This very scenario proves the regulatory body does not pay attention to consumers' woes. 

What is your suggestion? What should be done to ensure financial safety of MFS consumers, as well as agents? 

Currently, Bangladesh Bank's three departments - Bangladesh Financial Intelligence Unit (BFIU), Payment Systems Department (PSD) and Financial Integrity and Customer Services Department (FICSD) - collectively monitor the mobile financial services sector. 

These three departments work on different areas of fraud. For example, BFIU works on money laundering and terror financing and FICSB works on the customers' complaints. 

We are saying that we need a single devoted and dedicated department under Bangladesh Bank which will exclusively work on fraud. It will have to explore how the nature of fraud is changing over time because with the introduction of new technologies, that is changing. It will have to work to reduce fraud. The most important thing is that no regulator has yet made it its responsibility to contain the fraud. 

At the same time, we will have to create awareness among the MFS users as well as the agents. On the supply side, the MFS providers will have to invest more in advertising and awareness campaigns. 

We have had findings that if you train the agents, they become less likely to fall victims to fraud. That is an encouraging finding. We will have to train agents more and prioritise finding fraud in training. 

Some MFS providers are making advertisements, I believe we will have to create a huge campaign. If the awareness campaign increases, then the number of frauds will decrease. There is no magical solution. But we will have to work on it. 

I have seen some interesting findings, including that the highest number of fraud cases was in Sylhet, which is 30 percent, triple that of the national average of 9.3 percent and the lowest was 6 percent in Mymensingh. What do you think is the reason behind it?   

Yes. We have found that the highest percentage of people who face fraud are in Sylhet. But we do not know why. We will have to look into the matter as to why the number of frauds are so high in Sylhet. 

The reason may be that the literacy rate is low in Sylhet and the remittance inflow is high. But we have not conducted any in-depth research on it. We have asked the MFS providers to check what is happening there. 

Mymensingh saw the lowest percentage of fraud cases. But it is not much lower than the average 9 percent.