Credit Card Risks in Kenya – Risk Management
Many institutions that give out credit cards have to seriously consider what the credit card risks in Kenya are, of availing the cards to cardholders both for the cardholder and more so to the Banks. Why fraud committed against Banks in Kenya is due to the ignorance of credit card risk management skills.
Management of Credit Card Risks in Kenya
Credit card companies rely very heavily on the credit scoring bureaus and the information that is given on the application forms. Rarely do the card companies engage credit card risks management firms to assess the risks of running the cards business they engage in. The credit card risks are also not usually managed by the financial institutions’ risk management units. The banking industry in Kenya and indeed in the world has not appreciated the nature of credit card risks.Credit card applications are one area where credit card risks are most prevalent.
Prudent management of Credit card risks in Kenya -The Application screening process.
The cardholder is required to complete an application form for which he signs that the information he has availed to the card company is correct. It is not usual to have the cardholder do a face to face interview for a credit card. Where an application is suspect, the application is declined and usually the applicant is not interviewed or arrested. Information of this fraudulent application may not be sent to the credit reference bureau. This means the applicant would just approach another financial institution.
We have many cases where the applications with credit card risks are approved as the applications are not well screened. The staffs that are screening application forms do not understand credit cards risks and so do not know what to look out for. The management of credit card risks requires training, experience and also exposure to real life cases and/or case studies on the same.
When not adequately screened and monitored, many fraudulent applications are successfully processed. This is a major revenue leakage and more so because the credit card may never even be paid for since the applicant is fraudulent.
Credit card risks in Kenya and the role of credit rating bureaus
Financial institutions should ensure to make use of credit rating or scoring bureaus to ensure that they catch some of the fraudulent applications before credit cards risks are experienced by the bank. Prevention is definitely better than cure. The credit reference bureaus have to ensure that they keep updated and accurate information in their data. If the integrity of the bureaus is compromised, then credit card risks management would become harder to frustrate and contain to manageable levels.
It is therefore extremely important for the financial institutions to consider the losses they incur due to weak or nonexistent credit card risks in Kenya management department or unit that is involved in vetting credit card application forms.