HabariPay, the fintech arm of Guaranty Trust (GT), has commenced a legal process to recover ₦1.1 billion ($1.1 million) that was erroneously sent to numerous account holders in 2023. The fintech’s efforts received a boost when the federal high court in Lagos granted an application ordering over 40 financial institutions to place restrictions on accounts that received the funds.
The erroneous transaction occurred when merchants were mistakenly credited twice, resulting in a substantial financial loss for HabariPay. To rectify the situation, the fintech company sought legal intervention to compel the affected merchants to refund the excess money. According to the court documents, any other account holders who benefited from the double credits will also be required to return the funds.
How the Error Occurred
The specific cause of the double crediting has not been fully detailed in court documents, but insider sources present two possible scenarios. One source with knowledge of the situation speculated that hackers exploited a vulnerability in HabariPay’s system through a method known as “race conditioning,” which allowed them to trigger simultaneous transactions. On the other hand, another individual connected to Guaranty Trust Co. (GTCO) suggested that human error might have been the underlying cause.
Before taking the legal route, HabariPay attempted to recover some of the lost funds by directly contacting the merchants to reverse the transactions. However, for merchants they were unable to reach, court orders became necessary. In Nigeria, financial institutions are legally required to obtain court authorizations before reversing erroneous transactions, making this legal move a crucial step for the fintech.
Slow Legal Process in Nigeria
One key challenge highlighted by the incident is the slow pace of legal proceedings in Nigeria, which delays the recovery of lost funds. For fintechs and financial institutions, such delays pose significant operational challenges, especially when the goal is to quickly reverse fraudulent or erroneous transactions.
Fraud on the Rise in Nigeria’s Financial Sector
HabariPay’s experience is part of a larger trend in Nigeria’s financial industry. In the second quarter of 2024, financial institutions in the country recorded fraud-related losses totaling $25.7 million, representing a staggering 1,784.94% increase compared to the previous quarter. This sharp rise in fraud incidents places pressure on fintechs to improve security measures and highlights vulnerabilities in the industry.
The outcome of HabariPay’s efforts will be a key development in the ongoing conversation about fraud prevention and resolution within Nigeria’s rapidly evolving financial sector. As digital banking and fintech services grow in popularity, incidents like this underscore the importance of robust security protocols and faster legal recourse mechanisms to protect institutions from crippling losses.