Phone financiers hit big as borrowers bypass security locks to evade payment

 

Kenya’s asset financing market has significantly reshaped access to essential tools like smartphones, offering millions of low-income earners a lifeline to the digital economy.

According to the Communications Authority of Kenya, the Buy Now, Pay Later (BNPL) model has been at the heart of this transformation, which has boosted smartphone penetration to 68.3 per cent.

While this has been hailed as a win for digital inclusion, a growing challenge threatens to undermine the industry: phone flashing.

This entails illegal modifications to the software of financed devices, allowing users to bypass security systems designed to lock phones in case of payment default.

The practice, which is rampant in major towns such as Kitale, Eldoret, Kisii and Nairobi, is causing significant financial losses and eroding consumer trust in mobile financing models. “This isn’t a small-scale issue; it’s a coordinated operation. Between July and September last year, tens of thousands of devices were compromised, costing the industry over Sh100 million in losses,” says Head of Technical Product at Watu Credit Ken Gitonga.

Entry-level smartphones, prized for their affordability and demand in markets like Uganda and Ethiopia, are particularly vulnerable. Companies such as Watu Simu and M-KOPA have borne the brunt of the epidemic. For instance, highly sought models such as the Samsung A04 and A14 series have been withdrawn from sale due to their susceptibility to hacking.

The impact is stark: Watu’s monthly smartphone sales plummeted from 50,000 units to just 30,000 month-on-month, underscoring the severity of the threat.

The proliferation of online resources teaching users how to bypass security measures compounds the problem. A quick search reveals videos and guides instructing users on removing M-KOPA tracking systems from financed phones.

On TikTok, users like “Mkopa Guru” usually openly invite others to contact them for assistance in unlocking devices, showcasing the audacity and accessibility of these schemes. The consequences extend beyond corporate losses. Retailers who depend on financed devices for income have seen revenues nosedive, with some forced to cut jobs.

 “This crisis affects the entire ecosystem. From distributors to end users, everyone feels the ripple effects,” said Ethany Mobiphones chief executive Nick Onunga.

Flashers often use advanced tools to bypass security systems and frequently collude with customers who default on payments. Law enforcement agencies usually acknowledge the challenge but emphasizes the legal ramifications.

“Tampering with financed devices is a criminal offence under the Computer Misuse and Cybercrimes Act,” says a law enforcement officer familiar with the issue. However, limited enforcement capacity means many perpetrators operate with impunity.

In response, mobile financiers are ramping up countermeasures. Firms such as Watu Simu have partnered with manufacturers such as Samsung to integrate advanced security technologies like Knox Guard PAYG. This software has been pivotal in thwarting many hacking attempts.

Additionally, companies are tightening their Know Your Customer (KYC) processes and reducing authorised dealerships to minimise exposure to bad actors.

While effective, these measures have come at a cost, with legitimate dealers experiencing reduced business opportunities.

Another strategy involves focusing on financing less expensive models, typically priced below Sh16,000, which are less appealing to hackers. Although this shift may limit revenue growth, it’s a necessary trade-off to stabilise the industry.

The rise of phone flashing also reflects broader economic and social issues. Many consumers acquire smartphones through BNPL programmes without the financial stability to meet repayment plans.

This creates fertile ground for unethical practices like flashing.

 “It’s not just a technical problem; it’s also behavioural. Customers need to understand that defaulting on payments and enabling flashing ultimately damages the system for everyone,” noted Onunga.

Industry leaders are calling for stronger legal deterrents. Gitonga argues: “There must be serious consequences for those involved. We’re collaborating with authorities to ensure offenders are held accountable.”

Despite challenges, the industry is banking on enhanced security measures, robust customer education and collaboration among stakeholders to fortify Kenya’s mobile financing ecosystem. Companies like Watu Simu and M-KOPA are making efforts to balance innovation with vigilance.

In a country where youths are now actively engaged in hacking as a business, the battle against phone flashing is far from over.

The industry is also evolving, and the tactics of those seeking to exploit it will also change. Success will hinge on technological innovation, legal enforcement, and a collective commitment to sustaining the promise of digital inclusion for all.