The unseen threat: How fraud undermines financial inclusion

Financial inclusion impact hindered by fraud

Financial inclusion is an essential pillar of economic empowerment, particularly in developing countries where large segments of the population remain excluded from formal financial systems. Globally, an estimated 1.4 billion adults still lack bank accounts, limiting their ability to save, borrow, receive payments, or access credit.¹ In response, governments, development organizations, and private sector entities have turned to digital financial services as a tool to bridge this gap. Digital financial services can, in theory, lower barriers to entry and expand access to underserved communities at unprecedented speed and scale.

However, this push for digital financial inclusion has often prioritized rapid access over safety and sustainability. While the benefits of digital onboarding are widely promoted, the associated risks, particularly fraud and cybercrime, are frequently downplayed or overlooked. As highlighted in a report by the Carnegie Endowment for International Peace, digital financial inclusion programs that are rolled out at scale without robust security measures have exposed vulnerable populations to identity theft, scams, and systemic data breaches. Digital financial services providers often fail to embed adequate risk mitigation into their systems, leaving users unprotected and eroding public trust in both financial products and the institutions behind them.

The Carnegie Endowment notes that the implementation of biometric digital ID systems has been one of the most visible responses to fraud concerns, intended to enhance security and support “know-your-customer” (KYC) compliance.² While these systems are often promoted and intended as fraud prevention tools, in practice they have suffered from large-scale breaches of sensitive personal data, raising significant questions about their effectiveness considering security failures. In countries with unsophisticated data protection laws and poor enforcement, such security failures may not only fail to curb fraud but may also magnify the risk to citizens.

Fraud prevention in financial inclusion has not kept pace with the speed of digital expansion. Cybercrime networks exploit gaps in enforcement, and, at the same time, industry collaboration on fraud prevention remains limited and protective measures are often implemented years after systems launch.³ As a result, even well-intentioned inclusion initiatives risk harming the very populations they aim to serve if they neglect the fundamentals of security. If financial inclusion is to fulfill its promise, fraud mitigation and data protection must be treated not as afterthoughts, but as central pillars of policy and program design.

Balancing access with adequate security

Around the world, ambitious financial inclusion initiatives have brought millions of previously unbanked people into the formal financial system. Yet, as these systems scale rapidly, security gaps have left new users vulnerable to fraud, highlighting the urgent need to balance access with robust protections.

One example is Kenya, a global leader in financial inclusion, which successfully launched M-Pesa, its mobile money platform, in 2007. Today, Kenya has over 87 percent mobile money penetration.⁴ Rapid adoption, however, brought significant fraud challenges. Social engineering scams and SIM swap fraud became widespread, with fraudsters impersonating M-Pesa agents to trick users into revealing personal information and criminals taking over victims’ mobile numbers to transfer money out of accounts.⁵ A 2021 FinAccess survey found that nearly half of Kenyan mobile money users had lost money in the preceding 12 months, primarily through phone fraud.⁶ In response, Safaricom, the operator of M-Pesa, strengthened user authentication, launched fraud awareness campaigns, and set restrictions on agents.⁷ In September 2025, Safaricom launched Fintech 2.0, an upgrade to M-Pesa’s core platform, which embedded AI to increase fraud detection.⁸ The Central Bank of Kenya also tightened digital financial service regulations to enhance security.⁹

India is another example of large-scale financial inclusion through its implementation of the Pradhan Mantri Jan Dhan Yojana (PMJDY), launched in 2014. This initiative aimed to provide every household with access to a basic bank account and was supported by the Aadhaar biometric ID system. Over 561.1 million accounts have been opened, but the rapid expansion has created fraud risks, including phishing, malware, one-time password (OTP) theft, and SIM swapping.¹⁰ While authentication through Aadhaar has enabled streamlined transactions, it has also raised significant concerns around misuse of biometric data. In response, the Indian government has introduced a variety of initiatives including launching digital literacy campaigns, collaborating with financial institutions and technology partners to bolster anti-money laundering (AML) capabilities, and strengthening cybersecurity through measures such as enabling real-time fraud detection and response.¹¹

Nigeria’s financial inclusion rate rose from 30 percent in 2011 to 63 percent in 2024, driven by the Central Bank of Nigeria’s National Financial Inclusion Strategy and supported by mobile banking, agent networks, and a thriving fintech ecosystem.¹² However, the digital nature of Nigeria’s financial inclusion also introduced new and sophisticated forms of fraud. Common schemes include phishing scams, SIM swap fraud, and identity theft.¹³ The Innovations for Poverty Action’s 2024 Nigeria Consumer Protection Survey, which assesses how Nigerians are using digital financial services, found that 23 percent of users experienced a scam or fraudulent call or message, and less than half of those users sought redress.¹⁴ To help counter threats, Nigeria introduced the Bank Verification Number (BVN) for stronger identity checks, launched cybersecurity frameworks, and expanded public awareness campaigns to help new users detect and avoid scams.¹⁵

These case studies highlight a common pattern of fraud risks rising during the early stages of financial inclusion, especially when new users lack digital literacy and safeguards are not yet robust. With stronger privacy protections, better technology, and user education, financial inclusion can become a powerful tool not only for economic empowerment but also for building more secure and transparent financial ecosystems. As the global push for financial inclusion continues, policymakers, banks, and fintechs must anticipate and mitigate the risks of fraud, ensuring that inclusion does not come at the cost of security.

Prioritizing financial health in digital financial services

The goal of financial inclusion should be to improve users’ financial health, not simply to increase the number of people with digital accounts or payments capabilities. Products should be tailored to the needs of end users, incorporating financial education and risk alerts that help users avoid fraud and poor financial decisions. Fraud is one of the most overlooked risks in digital financial inclusion initiatives, and policymakers can address this by ensuring the integration of multi-layered security measures into services, such as advanced fraud detection algorithms, real-time transaction monitoring, and AI-powered anomaly detections. These protections should be embedded by default, ensuring that even first-time users benefit from strong safeguards.

Sponsors of emerging payment methods must be aware of potential fraud and operational risks to be successful in the payment marketplace.¹⁶ Public-private partnerships can set the gold standard for data protection, ensuring encryption of personal identifiable information, tokenization of sensitive data, and secure authentication methods that protect users. By embedding robust fraud prevention measures into every stage of digital financial services design, advocating for inclusive KYC models, and strengthening data privacy protections, key government and payment sector stakeholders can ensure that digital inclusion leads to genuine financial empowerment rather than exposing vulnerable populations to new risks.

Footnotes:

1.  World Bank Group. (2025, January 27). Financial Inclusion: Financial inclusion is a key enabler to reducing poverty and boosting prosperity.
2.  Augustine, A. (2023, July 13). The Limits of Accelerating Digital-Only Financial Inclusion. Carnegie Endowment for International Peace.
3.  Augustine (2023)
4.  World Bank Group. (2025). The Global Findex 2025.
5.  Siele, M. K. N. (2023, March 30). M-Pesa has been huge for Kenya’s economy — and for scammers. Rest of World.
6.  Financial Sector Deepening Kenya. (2021). 2021 FinAccess Household Survey.
7.  MobileMoneyAfrica. (2024, October 27). Agents Exit M-Pesa Due to Restricted Till Locations in Kenya; Safaricom. (n.d.). Fraud Awareness; Safaricom. (2021, July 1). M-PESA to Unregistered Numbers.
8.  Safaricom. (2025, September 19). Safaricom Announces Largest M-PESA Upgrade Yet, Ushering in The Next Generation of Innovation.
9.  The Central Bank of Kenya. (2025). (Non-Deposit Taking Credit Providers) Regulations, 2025.
10.  Kumari, B., & Singh, A. (2025, June). Cybersecurity Risks and Data Privacy Concerns in PMJDY Digital Transactions. European Economic Letters, 15(2); Ministry of Finance. (2025, August 28). Pradhan Mantri Jan Dhan Yojana (PMJDY) – National Mission for Financial Inclusion – completes 11 years of transformative impact.
11.  ETBFSI Research. (2025, July 4). How Financial Fraud Risk Indicator will help banks to tackle cyber frauds. ETBFSI; Ministry of Electronics & IT. (2022, December 23). Promotion of Digital Literacy; Tiwari, D. (2024, October 22). Govt & Fintech cos join hands for indigenous system to check fraud. The Economic Times.
12.  Central Bank of Nigeria. (n.d.) Financial Inclusion; World Bank Group (2025)
13.  Ugbaja, O. C. (2025, August 19). Management and Trade Online Banking Adoption and the Surge of Phishing and Online Scams in Nigeria: An Empirical Study. Journal of Economics, 31(8).
14.  Mwesigwa, B. (2025, January 17). The Realities of Using Digital Financial Services in Nigeria. Innovations for Poverty Action.
15.  Abuja, V. I. (2025, July 11). NOA, EFCC launch nationwide campaign to tackle cybercrime, promote financial integrity. The Nation; Central Bank of Nigeria. (n.d.) Bank Verification Number; Digital Policy Alert. (n.d.) Nigeria: Implemented CBN Risk-Based Cybersecurity Framework and Guidelines for Deposit Money Banks and Payment Service Banks, including minimum cybersecurity requirements.
16.  Braun, M., McAndrews, J., Roberds, W., & Sullivan, R. (2008, September). Understanding Risk Management in Emerging Retail Payments. Federal Reserve Bank of New York.