Interswitch reportedly loses ₦30 billion to chargeback fraud

·
November 3, 2023
·
2 min read
Interswitch building

The news:

  • African fintech Interswitch has reportedly lost ₦30 billion ($38 million) to chargeback fraud.
  • The company is seeking legal action to recover the funds, as it has reported the case to the Economic and Financial Crimes Commission (EFCC).
  • It has reportedly recovered ₦10 billion ($12.6 million) out of the lost funds.

While Interswitch hasn't made an official statement about the ₦30 billion loss, it is seeking to freeze accounts in 54 banks connected to the fraud.

Per TechCabal's report, the chargeback fraud dates back several years and is directly linked to Interswitch employees who likely exploited vulnerabilities in the company’s system.

At least one person connected with the fraud case has been arrested.

The loss was caused by a system glitch that allowed some merchants to receive chargebacks fraudulently.

Advertisement

What is chargeback fraud?

Also known as friendly fraud, chargeback fraud is a type of fraud that happens when a customer disputes a legitimate charge that was made on their debit or credit card.

For example, if I buy groceries from a shop and pay with by credit or debit card, I can go back to my bank and dispute the transaction, saying it never happened.

If I win the dispute, I get my money back, which means I got the groceries for free.

However, chargeback fraud isn't always intentional. Some people forget they made the purchase and the merchant loses the money they made from that sale.

In Interswitch's case, however, the chargeback fraud was caused by a glitch which allowed merchants to receive chargebacks fraudulently.

Don't miss out on Africa's financial revolution
Keep up with the rapid pace of innovation in Africa's fintech landscape with Fintech Today. Designed for quick consumption, our exclusive newsletter, trusted by over 1,000 industry leaders, delivers the latest insights, trends, and breakthroughs right to your inbox.
Fintech Today

Give it a try, you can unsubscribe anytime. Privacy Policy.

This could be the type of chargeback fraud known as merchant chargeback fraud.

READ MORE   Amazon’s cheaper Prime Video Mobile Edition is now available in South Africa

Merchants can also dispute transactions the same way their customers can. According to Chargeflow, merchant chargeback fraud occurs when the merchant intentionally or unintentionally misrepresents the product or service and fails to deliver the promised goods or services.

This merchant then keeps the customer's payment and also gets a refund from the bank or issuer of the card.

Chargeback fraud in Africa

Chargeback fraud has been a major headache for fintechs that issue cards to their users.

In 2022, Union54, a YC-backed startup that enables startups to issue physical and virtual cards halted its services in Nigeria leading startups like Flutterwave, Eversend, and Payday to stop issuing these cards. At the time, the startup said it had witnessed many cases of chargeback fraud.

Chargeback fraud was also one of the reasons why African fintech Chipper Cash revamped its policies on cards issued to users.

He's a geek, a sucker for Blockchain and an all-round tech lover. Find me on Twitter @BoluAbiodun1.
He's a geek, a sucker for Blockchain and an all-round tech lover. Find me on Twitter @BoluAbiodun1.
Subscribe To Techpoint Digest
Join thousands of subscribers to receive our fun week-daily 5-minute roundup of happenings in African and global tech, directly in your inbox, hours before everyone else.
This is A daily 5-minute roundup of happenings in African and global tech, sent directly to your email inbox, between 5 a.m. and 7 a.m (WAT) every week day! 
Digest Subscription

Give it a try, you can unsubscribe anytime. Privacy Policy.

He's a geek, a sucker for Blockchain and an all-round tech lover. Find me on Twitter @BoluAbiodun1.
Other Stories
43b, Emina Cres, Allen, Ikeja.

 Techpremier Media Limited. All rights reserved
magnifier