With online scams on the rise, banks in Malaysia need to move away from SMS authentication

Cases of online scams are increasing in Malaysia. Authorities try to thwart the trend as online banking is expected to grow substantially over the next years.

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Central Bank of Malaysia has announced that financial institutions are now required to move away from SMS One Time Passwords (OTP) used by banks to authenticate users trying to connect or sign up for the Internet and mobile banking services.

In her speech at the virtual Financial Crime Exhibition on September 26, Tan Sri Nor Shamsiah Mohd Yunus, the governor of the central bank, Bank Negara Malaysia, said that banks operating in Malaysia would need to migrate to “more secure forms of authentication for online activities or transactions relating to account opening, fund transfers and payments, as well as changes to personal information and account settings.”

Moreover, customers will be restricted to only one device for the authentication of online banking transactions.

Banks will also need to have a customer service hotline dedicated to reporting financial scam incidents. They should tighten fraud detection rules and triggers for blocking suspected scam transactions and alert customers when there is suspicious activity.

Such measures to combat fraud may lead to some inconveniences, and online banking transactions may take longer to process, the governor warns.

Further details on this initiative, perhaps how banks shall authenticate their customers safely, will be announced in due course, she said.

Malaysian news has been recounting multiple stories of victims of online scams, while digital banking is expected to grow significantly over the next few years in the country. A classic SMS scam is to send messages pretending to be a bank so that people give their bank details to a fake agent.

According to Tan Sri Acryl Sani Abdullah Sani, Inspector General of Malaysia’s Police speaking also at the Financial Crime Exhibition, online financial scams have increased by about 50% over the past two years.

A total of 13,703 online scam cases were reported in 2019, involving losses of 539 million ringgit (US $117 million). There were 20,701 scam cases and losses amounted to 561 million ringgit in 2021 ($122 million). The scams were mainly sales scams, online trading scams, scams coming from Macau or Africa, compromised business emails, fake loans and SMS scams, the inspector general detailed.

From 2020 to May 2022, 68% of all commercial crime cases involved online fraud, he added.

Moreover, several Malaysians have been victims of fake oversea job offers. Malaysian Ministry of Foreign Affairs explained that 191 Malaysian victims have been rescued from Cambodia, Thailand, Laos and Myanmar.

At the same time, Deputy Domestic Trade and Consumer Affairs Minister Datuk Rosol Wahid said that a special license for online businesses is being worked on to protect online customers. “It is important to ensure digital transactions and online businesses on platforms such as marketplace, social media, websites and shopping apps are conducive and safe besides being user-friendly. We also plan to amend existing regulations to allow for the new licensing mechanism,” he told The Star.

The minister said Malaysia would look at countries like the United States, China, Singapore, and Saudi Arabia on how they monitor online businesses.

In the meantime, current regulations, such as displaying complete and accurate company profile information on the site, will be more strictly enforced, the minister assured.

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