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Abstract

The scope of banks’ culpability for e-banking fraud was the topic of this study, which used Enugu State as a case study. The study focused on examining the high-risk e-banking fraud risks in the Nigerian banking sector, as well as investigating the perceived factors that have a significant impact on the rise in e-banking fraud in Nigeria, examining the current significant mechanisms for e-banking fraud prevention in the Nigerian banking industry, and determining the extent of bank liability for e-banking fraud.

The study employed a survey research approach and enlisted individuals at random. A total of 100 responses were validated from the enrolled participants, all of whom are employees of Enugu State’s selected banks.

CHAPTER ONE

INTRODUCTION

Background to the study

Electronic banking is becoming a crucial channel for banking organizations as the global use of increasingly sophisticated internet and information technologies grows (Papazoglou, 2003). (Wei et al., 2012). Remote banking, which involves computerized transactions between banks and their customers, is recognized as a feature of the new economy around the world (Banstola, 2007). Electronic banking, sometimes known as e-banking, is the most recent delivery method for the banking system (Keivani et al., 2012).  Many researchers from various backgrounds have discussed the term “e-banking” in various ways, primarily because electronic banking encompasses a wide range of banking activities in which customers can obtain financial information and conduct transactions using a digital television, telephone, mobile phone, or computer (Hoehle, Scornavacca & Huff, 2012). Electronic banking, according to Perkins and Annan (2013), is the provision of services and distribution of information by banks to consumers through a variety of delivery channels that can be accessed using a personal computer or other electronic devices. Globalization, innovation, client needs, and competition, on the other hand, are reshaping the banking industry. Financial institutions, particularly the banking industry, have seen significant changes in the previous decade as a result of the development of a knowledge-based economy and the introduction of cutting-edge information and communication technologies. According to Wisdom (2012), the most important component in the future development of the banking industry is information and communication technology, which improves banks’ ability to offer complex goods, have superior market structures, diversify their markets, and expand globally. As a result, the traditional banking system, which consists of physical branches, is now under threat from information and communication technologies, which are characterized by automated systems of customer interaction (mobile banking, call centers, automated teller machines (ATMs), and online banking), which have relatively low costs and allow customers to choose from a variety of delivery channels (Keivani et al., 2012). As a result, electronic banking has grown into a thriving industry; the shift from traditional banking to electronic banking has been a “Leap” forward (Yazdanifard, WanYusoff, Behora, & Abu, 2011; Wang & Huang, 2011). Electronic banking covers several rising trends globally: it is extremely handy and simple for electronic banking customers to manage and access their bank accounts at any time and from any location on the planet (Brar, Sharma & Khurmi, 2012). This trend has bolstered the banking sector in recent years, as electronic banking saves a significant amount of money in areas such as ATM investments, staff training, branch openings, and other operational expenditures (Chaturvedi & Meena, 2016). The internet has drastically improved users’ experiences with electronic financial transactions (Abu-Shanab & Matalqa, 2015).

E-banking is a significant application of the internet for banking activities, and the internet has helped bank sectors improve their business strategies. Banks have made their services available over the internet, resulting in increased speed in the banking industry around the world (Mahdi, Rezaul & Rahman, 2010). Consumers and financial institutions stand to benefit greatly from the growth of electronic transactions (Singh & Singh, 2015).

This is supported by the fact that emerging modern technology have resulted in major changes in banking approaches and techniques.

As the use of remote banking services has grown, bank branches have begun to lose ground to computer-generated banking (Hoehle, Scornavacca & Huff, 2012). Globalization, changing social trends, competitiveness, and, in particular, advances in information and communication technology have prompted extensive banking reform (Loonam & O’Loughlin, 2008). In general, information infrastructure is seen as a way to introduce innovative electronic distribution channels for bank products and services around the world.

On the other hand, fraudulent electronic activities are on the rise and growing increasingly sophisticated, posing a serious danger to the trust and security of electronic banking services (Mahdi, Rezaul & Rahman, 2010)

E-banking fraud has evolved into a substantial and serious phenomena in the banking industry throughout the world when it comes to financial fraud and crime management (Rajdeepa & Nandhitha, 2015). Because these modern electronic fraud opportunities are typically extremely difficult to manage due to their technological complexity, banks may commit significant resources to preventing and detecting them (Kranacher, Riley & Wells, 2011). Banks face obstacles in preventing and detecting fraud, which are often exacerbated by existing organizational frameworks, political frameworks, regulatory frameworks, and newly devised technology techniques.

Even the creation of significant regulatory frameworks and regulatory assistance for a specific economy or nation, however, cannot guarantee that fraud in the banking sector would be eliminated or minimized (Hoffman, 2002). However, at the outset of electronic banking, the amount of fraud was negligible because the banking business was one of the most tightly regulated industries, with fraud prevention considered a duty.

On the contrary, banking represents the mediator of the economy; fraudulent acts have brought enormous losses that are affecting all the performing activities (Sahin &Duman, 2010). (Sahin &Duman, 2010).

Similarly, the transition from traditional banking to electronic banking is difficult not only in terms of managing bank risk, but also in terms of dealing with international and national anomalies (Saranya & Gunasri, 2013; Chaturvedi & Meena, 2016; Abu- Shanab & Matalqa, 2015).

Ineffective banking operations, internal control issues, lack of customer awareness and bank staff training and education, inadequate infrastructure, presence of sophisticated technological tools in the hands of fraudsters, negligence of banks’ customers concerning their e-banking account devices, and lack of compliance with banking rules are all factors contributing to the increase in e-banking fraud in Nigeria, according to the findings.

Furthermore, in Nigeria, the enforcement of norms and regulations relating to the prosecution of financial fraudsters has been lax. Distributed attacks, phishing, identity theft, brute force attacks, spamming, credit card frauds, ATM frauds, hacking and unauthorized access, theft of service frauds, online money laundering, denial of service attacks, creation and distribution of malware attacks, and other related online frauds – are all challenging issues for both electronic banking users and banks.

However, e-banking fraud has established an active presence in the banking sector, necessitating security awareness in order to effect behavioral change.

 Statement of the Problem

The banking industry plays a critical role in promoting the smooth growth of economic activity around the world (Sruthi & Prasanna, 2016). Banks are successfully placed in a continuum that governs the pulse of the economy as mediators between customers and suppliers of monies (Rampini & Viswanathan, 2015). Globally, the banking sector’s incapacity to successfully perform its functions as an intermediary and its inability to control financial difficulties that have arisen in the past have been a major source of concern (Gertler & Nobuhiro, 2010). Similarly, according to Rampini and Viswanathan (2010), the primary function of banking industry enterprises is to act as delegated monitors and advisers to borrowers on behalf of lawful depositors. Banks, on the other hand, must safeguard the confidence and trust of their varied clients in this specific relationship with borrowers and depositors (Wei et al., 2012). The failure of banks to perform their roles satisfactorily is due to the multiple dangers to which they are exposed and which are not adequately controlled (Papazoglou, 2003). The banking risk associated with fraud is one of these dangers that is gradually becoming a burden (Sruthi & Prasanna, 2016). Furthermore, fraud, which is defined as an intentional act of deception that causes monetary or physical asset losses in society, is now a global threat to the whole banking system (Ramamoorti, Morrison & Koletar 2013).

While the banking sector is attempting to comply with monetary authorities’ demands to recapitalize to the required minimum requirements, fraudsters are constantly decimating and endangering banks’ financial base (Mahdi, Rezaul & Rahman, 2010). Furthermore, the amount of engagement in e-banking fraud by bank management employees and coordination with outsiders, as well as the ease with which many avoid discovery, inspires many others to join in perpetrating fraud, is a worrying issue in Nigeria (Usman & Shah, 2013).

Furthermore, the Central Bank of Nigeria currently does not adequately investigate fraud in the Nigerian banking system, and thus there is little knowledge about the issues of e-banking fraud incidents, prevention, and detection.

This has been a contentious issue that has sparked debate among a number of authors, including Chaudhary, Yadav, and Mallick (2012); Mahdi, Rezaul, and Rahman (2010); and Sruthi and Prasanna (2016), all of whom have looked into comparable phenomena.

However, their research focus solely on the causes of credit card fraud, ignoring mobile fraud, internet fraud, computer-based fraud, and telephoning fraud, all of which are key electronic banking channel services, as well as the prevention and detection of fraud. Furthermore, most previous research on fraud in Nigeria used secondary data and did not explore the use of primary data, despite the fact that employees were the primary subject of those studies.

Objective of the study

The study’s major goal is to look at the extent to which banks are liable for e-banking fraud. The study’s specific goals are as follows:

1. To determine the high-risk e-banking fraud threats in the Nigerian banking sector.

2. To look into the elements that are thought to be contributing to the rise in e-banking fraud in Nigeria.

3. To investigate the Nigerian banking industry’s present significant measures for e-banking fraud prevention.

4. To assess the scope of banks’ liability for e-banking fraud.

Significance of the Research

The current study has implications for policymaking and financial institutions in terms of theories and empirical applications. The application of existing fraud theories to the Nigerian e-banking fraud prevention and detection context, such as routine activity theory (RAT) (Cohen & Felson 1979; Williams, 2016), will generate more information about whether these theories can be applied globally or whether they are dependent on cultural or local structures.

The investigation can also be expected to reveal some of the prerogatives asserted in academic and theoretical literatures surrounding the comprehension of financial fraud and its connotation. This research has a wide range of practical applications. The findings of this study can be used by the Nigerian banking sector to improve its fraud-fighting strategies and identify areas that are functioning successfully. In a practical sense, investors and customers are the primary users of this data. Overseas investment fraud is one of the most difficult obstacles to overcome (Broadman & Isik, 2007). Financial risk, on the other hand, is necessary in practically all financial institutions to some extent. For investors to make appropriate selections, they must first understand the level of risk and the specific variables that must be addressed.

Research Questions

To address the research goal, the following research questions have been formulated:

1. What are the e-banking fraud risks that the Nigerian banking sector is most concerned about?

2. What are the perceived variables that have a significant impact on the rise in Nigerian e-banking fraud?

3. What are the Nigerian banking industry’s current key procedures for e-banking fraud prevention?

4. What is the scope of banks’ liability for e-banking fraud?

Scope of the Study

This research focuses on Nigeria’s deposit money banks (commercial banks); the research questions were used to determine the impact of e-banking fraud on bank stockholders, as well as its prevention and detection. Because the core purpose of both internal and external stakeholders is to enable effective use of the e-banking system, the study covered the activities of both internal and external stakeholders of commercial banks in the Nigerian economy. Using questionnaires and direct interviews, data was collected from accountants, internal auditors, external auditors, managers, and directors working in the head offices of Nigerian commercial banks, as well as clients within the banking premises.

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