The Effect Of Bank Verification Number (BVN) On Fraud Prevention In Nigeria Banking Industry And Nigeria’s Economy

Project and Seminar Material for Economics

The Effect Of Bank Verification Number (BVN) On Fraud Prevention In Nigeria Banking Industry And Nigeria’s Economy


Abstract


The study examined bank verification number (BVN) and its implications on the banking sector and the Nigerian economy.

The study made use of primary and secondary data. Primary data was obtained from questionnaires administered to 120 staff of selected banks in Nigeria.

Secondary data were used to consolidate primary data. Data were collected on number of staff involved in banking sector, total amount involved in fraud, actual amount lost to fraud and number of fraud cases. The independent t-test statistic was utilized to test for significant difference in these variables in periods before (2010-2014) and after (2015-2017) the introduction of BVN in the banking sector.

The findings showed that: There is significant increase in the number of fraud cases in the banking system in periods after BVN introduction; There is significant reduction in the total amount involved in fraud in the banking system in periods after BVN introduction; There is no significant reduction in the actual amount lost to fraud in the banking system in periods after BVN introduction; There is no significant reduction in the number of staff involved in fraud in the banking system in periods after BVN introduction.

The study concludes that BVN scheme in Nigeria has been partially effective in tackling financial crimes and preventing fraudulent activities in the Nigerian banking system.

The study suggest that; The CBN should continue to ensure that financial institutions have through knowledge of their customers and their businesses and that banks operating in Nigeria are not used for the movement of illicit funds across the globe; The CBN should closely monitor compliance with the standards for the BVN operations in the Nigerian banking industry contained in its “regulatory framework for BVN operations and watch-lists for Nigerian financial system”.


Chapter One


Introduction

1.1 Background of the study

The role of bank verification number, aimed at curtailing hazards associated with social security and credit risk cannot be underestimated (Leland and David 1977). In recent times, biometric technologies have been used to analyze human characteristics as an enhanced form of authoumatication for real time security processes.

Overtime, there has been increasing incidents of compromise on our conventional security systems 9password and pin) and thus, there is need for greater security on access to sensitive and also, personal information in the banking system.

In the same vein, the extent to which violation in the credit policies and credit monitoring system weakens the financial intermediary system continue to attract empirical and theoretical debate on how well bank verification system would thwart those issues of default and scam.

In the motive of considering and treating challenges with identity management, the central bank of Nigeria (CBN), through te bankers committee in collaboration with all Nigerian banks on February the 14th, 2014, launched a centralized biometric identification system which is known as Bank verification number (BVN).

The bank verification number would give every bank customer, a unique identity across the Nigerian banking industry that can used for easy identification and verification at point of banking operations.

Biometrics refers to identification of an individual based on psychological or behavioural attributes; fingerprint, voice, signature, facial features etc. Bank verification number (BVN) uses biometric technology to register customers in the financial system. It records these physical features which are unique to individuals; fingerprint and the face.

The record would be used to identify the person afterwards (Diamond 1991). Ones a person’s biometric has been recorded, and Bank verification number issued, the account would be accessed through the bank verification number.

The major objectives of the initiative are to protect bank verification number customers, reduce fraud and strengthen the Nigerian banking system as it also positively affects the economy in a general view.

1.2 Statement of the Problems

Bank verification number (BVN) is a great initiative that would reduce illegal banking transactions and improve national financial intelligence gathering which will soon boost the economy. The interests of account holders should be accorded importance so that their increased confidence in the banking system would improve the financial standing of banks. Customers will use banks more when they know that there various transactions at different levels are safe, Bank verification number (BVN) gives much opportunities to protect customers, banks and the entire financial system. However, the researcher is examining the implication bank verification number (BVN) on the Nigeria economy and banking sector. It is important to consider the paramount role of the banking sector in the country’s economy as it has been known to maintain the inflow of money in the country so as to stabilize the country’s economy. According to (Udenze, 2014) ‘growth in this sector has been reduce due to high cases of economic and financial crimes; fraud and money laundering have significant effect on the financial security in the Nigeria banking industry. This problem has caused on the reputation of the image of the country, loss of foreign direct investment (FDI), which would also possibly lead to poor infrastructural development, dwindling confidence and distortions in our political as well as financial system, among many other things. In view of these crises as a result of crimes perpetuated by cyber thieves, the mandatory bank verification number exercise, embarked on by various nationwide has also caused congestions in banking halls. Although the exercise commenced since February 14th, 2014, the fire brigrade approach of most Nigerians have warranted most bank halls to be filled to its maximum and even propably beyond its maximum capacity in recent times.


1.3 Objective of the Research

  1. To examine the effect of Bank Verification Number (BVN) on the level of financial crimes in Nigeria.
  2. To examine the implication of Bank Verification Number (BVN) registration in fraud prevention in the Nigeria banking industry.
  3. To determine the threats and weaknesses of the implementation of Bank Verification Number (BVN).

1.4 Research Question

  1. What are the effects of the Bank Verification Number (BVN) on the level of financial crimes in Nigeria?
  2. What is the implication of Bank Verification Number (BVN) on the Nigeria banking sector?
  3. What are the threats and weakness of the implementation of Bank Verification Number?

1.5 Research Hypothesis

Hypothesis One
  • H0: There is no significant effect of Bank Verification Number (BVN) registration on fraud prevention in Nigeria banking industry.
  • H1: There is significant effect of Bank Verification Number (BVN) registration on fraud prevention in Nigeria banking industry.
Hypothesis Two
  • H0: There is no significant role of Bank Verification Number (BVN) initiative in Nigeria banking industry.
  • H1: There is significant role of Bank Verification Number (BVN) initiative in Nigeria banking industry.
Hypothesis Three
  • H0: There are no possible threats and weakness to the implication of Bank Verification Number (BVN).
  • H1: There are possible threats and weakness to the implication of Bank Verification Number (BVN).

1.6 Significant of the Study

The following are the significance of the study;

The outcome of the study will educate the general public on the benefits and implications of Bank Verification Number and its effect in fraud prevention in Nigeria banking industry.

This research will serve as a contribution to the body of literature in the area of the effect of personality trait on students academic performance, thereby consisting the empirical literature for future research in the subject area.


1.7 Scope of the Study

The research work is limited to the study of the effect of Bank Verification Number (BVN) on the level of financial crimes in Nigeria and the impact of Bank Verification Number (BVN) on fraud prevention in Nigeria to ensure financial security in the Nigeria banking system. Therefore, there would be a practical examination, inside look on specific commercial banks in osogbo, osun state with regards to the Bank Verification Number as a phenomenon with a minimal level of discomfort to researcher.


1.8 Limitation of the Study

Financial constraint:

Insufficient funds tend to impode the efficiency of the researcher in sourcing relevenat materials, literature or information and in the process of data collection (internet, questionnaire, interview).

Time constraint:

The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.


1.9 Definition of Terms

….


1.10 Organization of the Study

This study will be divided into five chapters and presented as enlisted below:

Chapter 1:

Introduction, background of the study, statement of the problems, objective of the study, research question, research hypothesis, significance of the study, scope of the study, limitation of the study, definition of terms, organization of the study. This chapter will

Chapter 2:

Literature review and theoretical framework with respect to the study consideration of previous research, comparisons and contrasts among several studies.

Chapter 3:

Research methodology and model specification.

Chapter 4:

Data presentation, analysis and presentation.

Chapter 5:

Summary, conclusion and recommendation


Chapter Five


Summary of Findings, Conclusion and Recommendations

5.1 Summary of Findings

The study examined bank verification number (BVN) and its implications on the banking sector and the Nigerian economy. The study established that because of the rising weakness of conventional security system, there is high demand for greater security for access to personal information in the banking sector. The Central Bank of Nigeria in partnership with the Banker’s Committee introduced the Bank Verification Number (BVN). The BVN serves as unique identifiers among customers across the banking system. The main objective of the BVN scheme is to authenticate customers of different financial institutions using a unique 11-digit number. The BVN enables a customer to have a single identity within the financial system regardless of the number of accounts held in different banks. BVN scheme is targeted to enhance the effectiveness of know-your-customer, reduce exposure to fraud, reduce financial crimes and theft and achieve a strong financial system in Nigeria.

The study made use of primary and secondary data. Primary data was obtained from questionnaires administered to 120 staff of selected banks in Nigeria. Findings of the study revealed that respondents agreed that BVN is effective in reducing financial crimes and preventing fraud in the banking sector in Nigeria. Furthermore, respondents agreed that the threats and/or weakness of BVN scheme in Nigeria amongst others include poor financial system, technological retardation, low level of financial inclusion, low level of internet penetration and telecommunication deficiencies. In addition, secondary data were used to consolidate primary data. Data were collected on number of staff involved in banking sector, total amount involved in fraud, actual amount lost to fraud and number of fraud cases. The independent t-test statistic was utilized to test for significant difference in these variables in periods before (2010-2014) and after (2015-2017) the introduction of BVN in the banking sector. The findings indicated that:

  1. There is significant increase in the number of fraud cases in the banking system in periods after BVN introduction.
  2. There is significant reduction in the total amount involved in fraud in the banking system in periods after BVN introduction.
  3. There is no significant reduction in the actual amount lost to fraud in the banking system in periods after BVN introduction.
  4. There is no significant reduction in the number of staff involved in fraud in the banking system in periods after BVN introduction.

5.2 Conclusion

The bank verification number is a biometric registration of customers in the financial system. It is introduced to tackle cybercrime, fraud and identity theft and enable banks to verify their customers easily in the context of Know Your Customer Initiative. Based on the findings, the study concludes that BVN scheme in Nigeria has been partially effective in tackling financial crimes and preventing fraudulent activities in the Nigerian banking system. The partial effectiveness of BVN in the banking system is largely attributed to its threats (such as financial sector underdevelopment, low level of internet penetration, low financial inclusion, etal) and the inability to address the remote causes of fraud and forgeries in the banking system.


5.3 Recommendations

In order to improve the effectiveness of BVN in the banking system and in the Nigerian economy, the following recommendations are suggested:

  1. The CBN should continue to ensure that financial institutions have through knowledge of their customers and their businesses and that banks operating in Nigeria are not used for the movement of illicit funds across the globe.
  2. The CBN should closely monitor compliance with the standards for the BVN operations in the Nigerian banking industry contained in its “regulatory framework for BVN operations and watch-lists for Nigerian financial system”. The watch-list consists of a database of bank customers identified by their BVNs, who have been involved in confirmed fraudulent activities in the Nigerian banking industry.
  3. A major function of the CBN is to promote a stable and sound financial system in Nigeria combating money laundering and terrorist financing is a critical component of this role. Appropriate sanctions and penalties should be meted out to any bank that is in breach of the regulatory framework for BVN operations in Nigeria.

5.4 Suggestions for Further Studies

In an attempt to enrich empirical literature on BVN, the following suggestions are proposed.

  1. Further studies should investigate the relationship between BVN and financial management in the Nigerian public sector.
  2. The effect of BVN scheme on financial security in banking system in Nigeria should be investigated.

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Frequently Asked Questions


How to prevent online banking frauds?

In order to avoid any type of such attacks, banking institutions are advised to undertake a number of security measures: they must do their best to stop machine-resident and web-based attacks from fraudulent transactions in progress. they shouldn’t forget to vindicate online banking clients from session-based transaction attacks.

How much can you save with anti-fraud measures?

The anti-fraud measures undertaken by the banks and card companies helped to save up to £6.40 in every £10 of attempted fraud transaction. The Association for Financial Professionals’ 2016 Payments Fraud and Control Survey found that 73% of finance professionals reported an attempted or actual payments fraud in 2015.

Is the banking industry facing a big problem of fraud?

Nowadays, the banking industry is facing an acute problem of fraud. The problem is global, and no country is fully protected. Fraudsters have become experts in hijacking online sessions: they steal client credentials and use malware to swindle funds from unaware account holders.

How do banks detect fraud?

To disclose fraudulent activity, a lot of banks use special transaction monitoring systems. By and large, they represent domestically produced software which demands an operator intervention. However, traditional security systems can function well for detecting individual point-of-sale, real-time fraud. 

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