South Africa's banking sector is coming under pressure from a rapidly evolving fraud wave, as criminals increasingly take advantage of digital banking channels, instant payments and artificial intelligence to target consumers in more personalized and harder-to-detect scams.
This is according to new research from BioCatch, which found that South African banking leaders are seeing a sharp increase in both fraud attempts and the financial impact of those attacks, underscoring the scale of the challenge facing one of Africa's most digitally active financial markets.
Speaking in a television interview, Jonathan Frost, Director of Global Advisory at BioCache, said the company surveyed the South African banking industry to assess how institutions view the current fraud threat. The findings point to widespread concern across the region.
“Nearly three-quarters, 75%, of those surveyed believed there had been an increase in fraud attempts against their institution,” Frost said. “Seventy-nine percent say losses from fraud are increasing, and 81 percent estimate their institution's losses exceed $5 million.”
That dollar figure equates to about 82 million rand, a huge burden for lenders already grappling with a competitive market shaped by digital-first entrants, rising customer expectations and pressure to keep costs under control.
BioCatch's findings also show that South African banks are facing more serious fraud-related pressures than some of their international counterparts. Frost compared South Africa's experience to Germany, where almost half of banking professionals surveyed believed that fraud losses were increasing.
“By any metric, the South African market appears to be under considerable stress,” he said.
The data comes as South Africa's financial ecosystem continues to rapidly digitalise, with a mix of traditional banks and fintech players expanding online and mobile services, while real-time and instant payment systems are gaining momentum. Frost said the combination of digital adoption and faster payments could make the marketplaces particularly attractive to fraudsters.
He pointed to the UK experience following the adoption of instant payments in 2008, when fraud losses rose sharply, largely at the expense of customers. In his view, unless additional security is provided, South Africa may follow a similar path.
At the heart of the problem is a change in criminal tactics. Frost said banks have become far more effective at preventing unauthorized fraud – transactions initiated without the customer's knowledge and for which banks often assume reimbursement responsibility. As a result, criminals are increasingly turning to social engineering, and directly manipulating customers into authorizing payments.
“Banks have become very good at preventing unauthorized fraud,” Frost said. “So criminals have shifted their focus to the customer because that's really the only way you can get money out of the bank with the customer's involvement.”
That trend has significant implications for both consumers and the banking industry. If fraud losses continue to rise, Frost warned that some lenders may respond by introducing more friction, such as additional security checks and verification steps in the customer journey, to slow or stop suspicious transactions.
While this can help reduce losses, it can also create headaches for common users and businesses. Banks must strike a careful balance between fraud prevention and customer experience, he said, especially in markets where consumers can more easily switch providers.
In markets with low switching activity, such as parts of Europe, banks may be more willing to increase frictions broadly. But in a highly competitive digital banking environment, too much friction can push customers away. This incentivizes banks to deploy more targeted controls that intervene only when the risk of manipulation is highest.
The question of who ultimately bears the costs of rising fraud remains unresolved. Frost said consumers still suffer significant losses in many markets today, particularly in cases involving authorized push payment scams or social manipulation. However, global regulatory trends suggest this may be changing.
He said regulators in Nigeria are examining whether banks should hold more responsibility when it comes to their controls to appropriately detect fraud. In the UK, near total reimbursement for both unauthorized and authorized fraud has become common, while parts of the EU are also moving towards stronger customer reimbursement frameworks.
For South Africa, this debate may become more urgent as the volume of scandal increases and public scrutiny intensifies. In addition to direct financial losses, Frost said reputational damage poses a major strategic risk for banks, especially as digital challengers and fintech companies compete aggressively for customers.
Consumer trust is at the heart of the economics of digital banking. Online and app-based models are generally more cost-effective for banks than branch-heavy operations, but these benefits depend on customers feeling secure enough to transact digitally. If trust is lost, adoption and loyalty may suffer.
Frost pointed to Australia as an example of a more coordinated response. There, banks have collaborated through real-time federation to identify risks on both ends of transactions, helping to reduce scam activity. He said South Africa should consider a similar model that allows institutions to share signals more quickly and detect suspicious patterns before money drains from the system.
He argued that a sustainable solution must go beyond just banks. While lenders are often the last line of defense before funds are transferred, many scams originate elsewhere in the digital ecosystem, including the technology platforms and telecommunications channels used by fraudsters to contact and manipulate victims.
In that context, Frost said any long-term regulatory or reimbursement framework must recognize that the burden cannot be placed solely on the banks. Instead, authorities may need to build accountability throughout the fraud chain – from technology platforms and telecommunications companies to financial institutions – to improve stronger prevention and protection for consumers.
For now, the message from the BioCatch study is clear: South African banks are facing a more complex and costly fraud landscape, with digital facilitation and criminal innovation advancing in parallel. How the industry and regulators respond could affect not only bank profitability, but also consumer confidence in the country's rapidly changing financial system.