I&M Bank has discontinued debit and credit card-backed e-commerce transactions, citing a massive increase in online fraud.
The bank said in a notice to its customers that it was stopping use of debit and credit cards for online transactions “to safeguard its customers’ funds.”
“We have of late noted an increase in e-commerce or online transaction frauds perpetrated through card payments,” I&M said.
Kenyan banks last year migrated their customers from the magnetic strip to the more secure chip –and-pin technology cards, increasing the security for ATM and Point of sale transactions, but it is now emerging that most of the fraudsters moved online where fraud has been on the rise.
“Since introduction of chip -and- pin cards, ATM and skimming fraud has gone down but fraudsters have now moved online,” said Suprio Sengupta, general manager marketing and product development at I&M.
The bank further instructed its customers who wish to buy things online to issue a prior notice asking for an opening of the card for use and to notify the bank as soon as a transaction has been concluded so that the function can be disabled.
“Please note that should you fail to do so, your card will remain open for ecommerce transactions and if a fraud is perpetrated on the same, the liability for the loss will solely rest on the card holder,” the notice said.
Debit cards and credit cards issued by banks have become increasingly popular means of transactions in the past five years as Kenya moves towards a cashless system.
In June, data from the Central Bank of Kenya showed that debit cards transactions were worth Sh110 billion while credit cards transactions were worth Sh1.17 billion.
This increased from Sh95.85 billion and Sh919 million from a similar period in 2014 for debit and credit card transactions respectively.
Even as the adoption of the cards rises globally, it has been noted that users do not take the necessary precautions to safeguard their online transactions.
The Central Bank of Kenya says there were 12.5 million debit cards in circulation and 220, 475 credit cards by June 2015.
A survey conducted by online security firm Kaspersky this month showed that almost a third of users do nothing to protect online payments and rely on financial companies for protection.
“These figures reinforce what has long been observed that many users are not only endangering themselves and their money but also the banking and payment systems they use,” said Ross Hogan, the Global Head of the Fraud Prevention Division at Kaspersky Lab.
Last year, it was reported that fraudsters stole at least Sh987 million ($9.4 million) from commercial banks in the first half of the year in schemes that exploited gaps in online banking solutions and involved collusion with bank staff.
A survey carried out by Jovago, a hospitality industry firm, found that 53 per cent of Kenyans use online payment methods while 47 per cent pay at the hotel.
Mobile payment, however, remains the most preferred mode of payment after pay-at-hotel taking up 29 per cent of the online payments with cards accounting for 24 per cent.
The survey indicated that customers consider M-payments to be of lower transaction risk as compared to card payments.
The trend has been followed in other industries, pushing online merchants to include the cash or mobile money on delivery option for their customers. Online shopping site Rupu added the cash on delivery option while Jumia have been cashing on the same.
Taxi hailing company Uber, which mainly conducts its transactions in most markets on a cashless basis, also added the cash system for the Kenyan market to grow the number of local customers who are still reliant on cash payments for services.
“The fear of online fraud has been part of the reason for the slow uptake of the cards for e-commerce payments. Banks have issued cards that can advance online payments but blocked the feature,” said Salome Makau, Visa country manager for sub-Saharan Africa.
E-commerce in Kenya remains relatively low with the Communications Authority of Kenya having indicated that inadequate cybersecurity systems to allow merchants verify the identity of their customers and manage potential fraudulent usage plays a role in the low uptake.
The CA estimates the value of e-commerce in Kenya at Sh4.3 billion compared to South Africa’s Sh54 billion while in Egypt and Morocco it is about Sh17 billion and Sh9.6 billion respectively.