BD Insider 208: Chargeback fraud costs Interswitch ₦30 billion in losses

₦30 Billion chargeback fraud hits Interswitch. We also covered Tizeti's plan to expand broadband penetration in Nigeria.

BD Insider 208: Chargeback fraud costs Interswitch ₦30 billion in losses
Mitchell Elegbe, the MD/CEO of Interswitc

After disbursing over ₦1.1 trillion to over eight million users within six years, Nigerian fintech startup, Piggyvest released a Savings Report for 2023 which indicates that emigration from Nigeria, often referred to as "Japa," ranks as the third most common savings goal among Nigerian income earners.

Johnstone takes a deep dive into the report to help you make sense of these numbers.

In today's brief, we bring you news about:

  • the ₦30 billion chargeback fraud at Interswitch
  • Tizeti's plans to boost broadband penetration in Nigeria

We also curated other noteworthy information including opportunities for Nigerian female founders.

📰 The Midweek Brief

#1. Interswitch lost ₦30 billion to chargeback fraud

The news: In a staggering financial setback, Interswitch, a leading African payments company, has been hit with a massive ₦30 billion loss attributed to chargeback fraud, underscoring the escalating threat of fraudulent transactions in the digital payment landscape.

Per TechCabal, the company has taken legal action to recoup the funds and has already managed to retrieve ₦10 billion. Interswitch has also issued a request to over 54 banks, seeking the temporary restriction of suspected bank accounts during the ongoing investigations, the report added.

Mitchell Elegbe, the MD/CEO of Interswitch

Know more: One significant challenge confronting numerous players in the card value chain involves a substantial incidence of chargebacks and fraudulent activities.

Chargebacks arise when customers dispute a transaction due to not receiving the expected value, while fraud occurs when individuals attempt to use unauthorised cards to validate a transaction. A fraudulent chargeback transpires when customers endeavour to obtain refunds despite having received value, leading them to contact the issuer or bank to initiate the chargeback procedure.

Last year, Zambian fintech startup Union54 halted operations over an attempted $1.2 billion chargeback fraud, which led to the shutdown of its virtual dollar card product.

Zoom in: A report by Smile ID, a pan-African identity verification and onboarding service provider, identified Nigeria as one of the high-risk countries in Africa for fraud. “Fraud rates move up and down across countries as growth and user behaviour changes in response to new products, services or changes in regulations,” says Smile ID.

The incident at Interswitch adds to the growing tally of fraud cases within the Nigerian fintech ecosystem this year, which include notable instances like the ₦2.9 billion cyber breach at Flutterwave, though not all of them are chargeback frauds.

In the last three years, financial institutions in the country have reportedly incurred losses exceeding ₦159 billion due to fraud, according to the Financial Institutions Training Centre.

The way out: In March, Semafor Africa reported that certain Nigerian fintech companies commenced a dialogue aimed at formulating a unified strategy to address fraudulent transactions occurring within their networks.

An anonymous source familiar with the matter told that a platform MVP has been developed and the formation of a board of trustees is currently underway. “With this initiative, there will be a pool of data that anyone can leverage to trace fraudulent activities,” Yele Oyekola, CEO and co-founder of Duplo, said.

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#2. Tizeti secures funding to expand broadband network in Nigeria

The news: Tizeti, a West African internet service provider, has successfully secured debt financing from Chapel Hill Denham's Nigeria Infrastructure Debt Fund (NIDF).

The undisclosed amount of funding will be used to drive the expansion of Tizeti's state-of-the-art broadband network across 15 states in Nigeria, including Delta, Akwa Ibom, Cross River, Abia, Anambra, Imo, Enugu, Abuja, Kano, and Kaduna.

Kendall Ananyi, founder and CEO at Tizeti

Why it matters: This expansion aims to bring affordable internet services to more regions and aligns with the Nigerian government's National Broadband Plan (NBP 2020-2025), which seeks to achieve 70% broadband penetration by 2025. The plan, which was launched in January 2020, aims to deliver data download speeds of a minimum of 25 megabits per second (Mbps) in urban areas, and 10Mbps in rural areas across Nigeria.

The importance of Tizeti's financing achievement is multifaceted. First, it addresses the ongoing digital divide in Nigeria, where many regions lack access to reliable internet services. This lack of connectivity has consequences for employment, education, family and social life, and access to information.

Secondly, increasing broadband penetration can lead to economic growth, making this expansion a potential catalyst for Nigeria's development. Additionally, Tizeti's partnership with NIDF demonstrates the significance of domestic capital in addressing digital exclusion barriers, providing affordable internet services and supporting Nigeria's economic and social growth.

Know more: Nigeria’s broadband penetration stood at 45.55% as of October 2022. With a 70% penetration target by 2025, Nigeria has an additional 24.49% in terms of broadband coverage to achieve.

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👀 What else happened?

  • The Bletchley Declaration: Among the 28 nations that have pledged to address AI-related risks through 'The Bletchley Declaration,' only Nigeria, Kenya, and Rwanda represent the African continent.
  • Francophone footballers are backing tech startups: StarNews Mobile recently secured $3 million in a pre-Series A funding round, supported by three prominent French footballers, highlighting a growing trend in the African Francophone tech ecosystem.
  • MFS Africa rebranded to Onafriq: The Pan-African fintech firm, MFS Africa, has rebranded to Onafriq, marking a pivotal step in its development and addressing trademark issues in the United States.
  • Blue Peak closed its flagship fund; BluePeak Private Capital, a private capital firm, has closed its flagship fund at $156 million to support scalable businesses in Africa.
  • Remote work ends at Mpharma: Following layoffs in September, Ghanaian healthtech startup, mPharma has revamped its strategy ending remote work arrangements.

💼 Opportunities

  • For Nigerian female founders: The National Information Technology Development Agency has launched Female Founders Training. This initiative is aimed at supporting and empowering women in Nigeria to leverage digital technologies for building viable and scalable businesses. Apply before November 7, 2023.
  • Interested in becoming a technical talent? The Nigerian Federal Ministry of Communications, Innovation & Digital Economy is accepting applications for its 3 Million Technical Talent Program. Learn more about the program.
  • Women Who Code fellowship: Because She Can has opened applications for their annual fellowship providing laptops, mentorship and internships to women in tech, targeting 10 awards this year. Apply by November 25.

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