Introduction to Bank Frauds in India
Bank frauds in India have tripled in value, but this surge is largely due to the reclassification of previously reported cases. More concerning, however, is the significant rise in payment scams over the past couple of years. The solution to this issue lies in implementing better security measures and rewarding those who prioritize security.
Traditional and Modern Bank Frauds
Most bank thefts occur through traditional means, such as loans obtained using forged documents or bribes. However, customers are increasingly at risk of being cheated when making payments. According to the central bank’s latest annual report, over half of the frauds took place in digital or card-based transactions, accounting for only 1.4% of the $4 billion in scams. These figures only account for situations where the sums involved were 100,000 rupees ($1,160) or more.
The Unified Payments Interface (UPI)
The UPI, a wildly popular smartphone-based payments network, facilitates person-to-person and person-to-merchant transactions. It is instantaneous, available 24/7, and imposes no cost on users. However, it logs over a million cases of fraud annually, according to government data. This is just the tip of the iceberg, as many cases go unreported. Affluent depositors may not even be aware that they are being slowly swindled.
Pressure on the Payment System
The growth of the UPI, which handles over $3 trillion a year, puts enormous pressure on the system. It has attracted criminals, and payment intermediaries have warned customers about various scams, including phishing attacks and SIM card cloning. The banking system cannot simply shrug off its responsibility with a "buyer beware" approach; it needs stronger safeguards.
The Need for Better Security
Anyone can set up a virtual ID to ask customers for money online, which is a welcome freedom. However, this freedom can be exploited, as seen in cases where bank accounts linked to suspicious IDs belong to fake individuals. Payment frauds occur globally, but what makes India’s case problematic is that scamsters have learned to coexist alongside a vast digital identity database and biometrics-based unique numbers.
The Role of the Reserve Bank of India
The Reserve Bank of India’s innovation hub has developed an artificial intelligence tool called "MuleHunter.ai" to identify suspicious transactions. However, it is not enough to merely identify these transactions; the local money-laundering laws need to be updated to allow banks to take prompt preventive action and restore funds to their rightful owners.
Stopgap Measures
Critical sectors of the economy cannot wait for legal changes. The stock market regulator has decided to add a layer of security to investment funds changing hands online. From October, a @valid suffix on virtual payment handles will be mandatory for brokers, investment advisers, and mutual funds to collect payments from investors.
Sustainable Solutions
Ultimately, the government must put the payment industry on a sustainable footing. Allowing banks and apps like Google Pay and PhonePe to recoup their costs could be a step in the right direction. The National Payments Corporation of India, the public monopoly that runs the network, should face competition, and private operators should be allowed to charge a basic transaction fee to offer institutional-grade security.
Conclusion
The government can maintain its explicit incentives to promote low-value cashless payments at the bottom of the economic pyramid. For other customers, a high-volume, competitive market would keep fees in check while offering greater peace of mind. Banks will also benefit from reduced frauds, as payment is a utility they must provide to depositors.
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
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