Identity Theft Surges in Angola and the US: A Dual Threat for African Fintech Startups

Identity theft has become a significant concern in the financial sector, affecting both developed and developing countries. This article explores the rise of identity theft in the United States and Angola, and its implications for African fintech startups focused on cross-border payments.

Identity Theft in the US: A Growing Concern

According to a report by the United States Financial Crimes Enforcement Network (FinCEN), identity fraud accounted for an astonishing 42% of all Bank Secrecy Act filings in 2021. This represented approximately 1.6 million reports ¹.

Figure 1: Identity-related BSA reports in the US, 2021[Source: FinCEN]_

Impact of Identity Theft on Financial Institutions

FinCEN Director Andrea Gacki highlighted the importance of robust customer identity processes in safeguarding the US financial system and combating money laundering and terrorist financing ².

Table 1: Depository institutions reporting identity-related suspicious activity[Source: FinCEN]_

Depository institutions, which accounted for 54% of identity-related BSA reports, reported over $201 billion in suspicious activity ¹. Money services businesses (MSBs) followed with 21% of the reports ¹.

Methods of Identity Fraud

The most common identity theft tactic was impersonation, with imposter scams making up 69% of the filings (around 1.7 million reports) ¹. Other methods included compromised credentials and insufficient verification procedures ¹.

Types of Fraud

Although fraud was the most common occurrence, it’s important to note that the financial damage exceeded the cost of impersonation or evading detection.

Identity Theft in Africa: A Rising Trend

Smile ID, a leading identity verification service in Kenya and Nigeria, reported an increase in fraudulent attempts ³.

Fraudulent Attempts on the Rise

In Kenya, fraudulent attempts rose by 7% from around 10% in January 2023 to 17% in July 2023 ³.

In Nigeria, the increase was more pronounced, with a 13% increase compared to the 8% recorded in January 2023 ³.

The Impact of Biometric Technology

Smile ID attributes this trend to the growing adoption of biometric technology for identity verification and fraud prevention, leading to more fraud being detected.

Challenges for African Fintech Startups

For fintech startups operating in cross-border payments across Africa, the surge in identity theft in both Africa and the United States presents a dual challenge ⁴.

Ebanx’s Experience

Wiza Jalakasi, Director of Ebanx Africa market development, has encountered this issue and advises startups, “You should not even launch your product without fraud mitigations built in. Fraudsters are amongst your first adopters. They keep up with the latest trends in fintech, and their preferred tactic is referral fraud” ⁴.

Early Identification and Mitigation

Startups should prepare for fraud losses from the product launch itself and prioritize early identification and mitigation efforts to minimize financial impact.