Abstract:
ABSTRACT
The banking industry is witnessing a revolution as a result of financial
innovations that have become a common feature of banking in the
contemporary business environment. The increasing activities of the internet
and the proliferation of mobile telecommunication companies in financial
activities present both an opportunity and a challenge to banks on the
continent. The surge in fraud activities in the finance sector, despite recent
convenience, has raised questions as to whether one should use and trust these
innovations. The purpose of this research is to identify the effect of financial
innovations (product and process) on financial fraud in some selected African
countries. This study is a quantitative research (explanatory design) of 17
countries in Africa over a seven-year period (2013-2019). The study explored
the fixed effect and random effect models in order to solve heterogeneity
issues in the panel data and the Generalised Method of Moments. The study
found that domestic credit to private sector by banks, the number of automated
teller machines and research and development expenditure had negative
relationship with fraud loss (dependent variable). On the other hand, broad
money (M3) and the number of patent applications had a positive relationship
with fraud loss. Also, unemployment, as a control variable, had a positive
relationship with fraud loss. The study concludes that product and process
innovations have both positive and negative implications on financial fraud.
The study recommends that domestic credit to private sector and research and
development expenditure should be increased in countries. In addition, patent
application process should ensure that security features are secure and the
number of ATMs in the countries are increased
