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Beware... 800 online financial frauds a day

Mumbai, Jun 25, 2024

Nearly 800 digital payment fraud cases are reported every day in India, nearly 10 times more than what RBI's annual report showed. This is because the central bank's took into account cases above Rs 1 lakh only.

According to the report, 29,082 card & digital payment fraud cases worth Rs 1,457 crore were reported in the previous fiscal. When frauds below Rs 1 lakh are taken into account, the total number of cases increases by 2.7 lakh, amounting to Rs 653 crore.

This was disclosed by RBI in a response to an RTI query where it said that in the last five years, there were 5.4 lakh fraud cases worth Rs 1,146 crore. This translates to nearly 800 fraud cases a day.

Furthermore, if all the cases from the National Cyber Crime Reporting Portal are included, the surge is even higher. Many frauds reported on the portal are not recorded as banking frauds because the money is transferred voluntarily to a third party masquerading as a merchant or service provider.

In Feb this year, a committee relating to the ministry of electronics and IT said that there were Rs 5,574-crore worth of cyber frauds reported on the National Cyber Crime Reporting Portal in FY24 up to Sept 2023. Another RTI response last year had revealed that there were 21 lakh complaints on the portal between Jan 2022 to May 2023.

According to bankers, there are various kinds of frauds. First, where fraudsters use malware or breach systems to steal funds. Second, phishing or misrepresentation to get the victim to reveal credentials or undertake a transactions. Third, where the victim voluntarily transfers funds into a fraudulent scheme or fake e-commerce site. Bankers said that many cases where the customer voluntarily transfers funds are not reckoned as banking frauds because the bank systems are not breached.

According to a study by payments company EPS, over the past three years, retail digital payments have grown 24% in value and 53% in volume year-over-year. However, frauds have risen 109% in value and 59% in volume over the same period.

"Traditionally, when digital payments were made using cards it was the issuer bank who took the responsibility of ensuring that the customer grievance was addressed. In online transfers, the cost of unresolved frauds is borne entirely by the consumers as third-party app providers only facilitate the transfer," said Mani Mamallan, chairman and MD, EPS.

The study estimated that approximately Rs 3 per lakh of digital transactions reported in 2023-24 were fraudulent, with Rs 1 per lakh occurring during that period and the remainder from earlier periods. Mamallan adds that an institutional underwriting mechanism could be created to protect consumers from these losses. In 2017, RBI had introduced the concept of zero customer liability in unauthorised transactions. The zero liability concept applies when the customer does not share credentials or if the fraud occurs after the customer reports that his account has been compromised. There is no protection for the customer when the funds are transferred voluntarily.

Earlier this month, IBA chairman M V Rao said that most of the online frauds were because of customers falling victims to scams and not vulnerabilities in the banking system.

[The Times of India]

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