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Interswitch loses ?30b to chargeback fraud

African payments and infrastructure firm, Interswitch, has lost as much as ?30 billion after a system glitch allowed some merchants to fraudulently file and receive chargebacks, according to court documents.

An online platform, Investopedia, defined a chargeback as a charge that is returned to a payment card after a customer successfully disputes an item on their account statement or transactions report. A chargeback may occur on debit cards (and the underlying bank account) or on credit cards. Chargebacks can be granted to a cardholder for a variety of reasons.

The company is now attempting to recover the funds through legal action, and it has reported the fraud to the Economic and Financial Crimes Commission (EFCC), Nigeria’s anti-money laundering agency. So far, Interswitch has recovered a little over ?10 billion, according to one person with knowledge of the matter. When contacted, Interswitch declined to comment.

The court documents seen by TechCabal and corroboration by three people with direct knowledge of the situation showed that Interswitch filed a motion at the courts on the suspected bank accounts. The payments giant has also requested that 54 banks place restrictions on hundreds of suspected bank accounts until the investigation and recovery process is complete, said a lawyer at a top Nigerian law firm with knowledge of the ongoing case.

The chargeback fraud dates back several years, two sources with knowledge of the situation said but they declined to share a specific timeline. The current incident, however, is directly linked to a few former and current Interswitch employees who likely exploited vulnerabilities in the company’s system, the sources said. At least one person has been arrested in connection with the incident, a source also said. 

Nigeria’s financial services industry has seen an increase in incidents of fraud in the last four years. Nigerian financial institutions have reported ?159 billion ($201.5 million) loss to fraud cases since 2020, according to the Financial Institutions Training Centre (FITC).