June 15, 2024, New Delhi: There was a significant increase in fraud cases within the banking sector in the financial year 2023-24 to 36,075 from 13,564 in FY23 — a rise of 166%, according to the Reserve Bank of India’s (RBI) annual report for the previous fiscal year. In terms of value, the frauds amounting to INR 13,930 crore in FY24, is 47% lower than the previous financial year, the report said.

“An assessment of bank group-wise fraud cases over the last three years indicates that while private sector banks reported maximum number of frauds, public sector banks continued to contribute maximum to the fraud amount,” the central bank said. While small value card internet frauds contributed maximum to the number of frauds reported by the private sector banks, the frauds in public sector banks were mainly in the loan portfolio. The report also highlighted the growing threat of fraud and data breaches originating from cyber threats. While the RBI has considered only domestic financial transactions, the new format captures e-commerce transactions — transactions using FASTags, digital bill payments and card-to-card transfer through ATMs, etc. However, failed transactions, chargebacks, reversals, expired cards/ wallets, are excluded. Fraud leads to reputational, operational, and business risk for banks and undermines customers’ trust in the banking system with financial stability implications. Despite tough regulations and improved technology, scamsters were finding new routes to game the system. A recent RBI report said new technologies enhance the efficiency and effectiveness of banking operations. “With this, however, the risks of fraud and data breaches have also increased. Concerted efforts by all stakeholders including regulators, banks and customers are required to protect the system from these threats. On its part, the Reserve Bank has been striving to update the regulations to protect customers while ensuring that innovations are not stifled,” the report stated.

It must be noted here that according to feedback received by LocalCircles over the last 3 years, it estimates that 6 in 10 Indians do not report financial frauds to regulators or law enforcement agencies. In the event when the fraud value is less than INR 1000, 9 in 10 do not report the same. Similarly, 7 in 10 Indians who use credit cards, report the fraudulent transaction or wrong charge to their bank or dispute it.

With thousands of posts and comments received from people in the last 12 months on the subject of financial frauds, LocalCircles for the first time conducted an urban India survey to find out the prevalence of financial fraud experienced by Indians in the last 3 years and understand the different types of frauds that they or their family members have experienced. The survey received over 23,000 responses from consumers located in 302 districts of India. 62% respondents were men while 38% respondents were women. 41% respondents were from tier 1, 27% from tier 2 and 32% respondents were from tier 3, 4 and 5 districts.

47% urban Indians surveyed say they or someone in their family have been a victim of financial frauds in the last 3 years

The survey first asked respondents, “Did you or your family members experience any type of financial fraud transactions in the last 3 years?” Out of 15,763 who responded to the question, 47% stated “yes” they or their family members have been victims of financial frauds in the last three years while remaining 53% of respondents stated “No”. This is a significant number which clearly puts forth the fact that almost every other household has someone who experienced some type of financial fraud in the last 3 years.

Of those urban Indian household consumers who experienced financial fraud in the last 3 years, 43% experienced fraud with their credit card while 30% experienced fraud via UPI transactions

In the light of the fact that 44% of urban Indians surveyed say they or someone in their family have been a victim of financial frauds in the last 3 years, the survey asked, “What are all the different types of financial fraud transactions that you or your family members have experienced in the last 3 years?” Some among the 7,409 who responded to the question indicated more than one option with 43% indicating “fraudulent transaction on credit card”; 36% indicated “fraudulent UPI transactions”; 13% indicated "fraudulent transactions on debit cards”; 19% indicated "fraudulent transactions on bank accounts”; 6% indicated "fraudulent transactions on ATM cards”; 30% indicated "other types of fraud financial transactions” and 9% of respondents did not give a clear reply. To sum up, among those who experienced financial fraud in the last 3 years, 43% experienced fraud with their credit card while 30% experienced fraud via UPI transactions.

It must be noted here that the credit card data of Indian consumers is easily available for sale by thousands of data vendors across India. With personally identifiable information like pan card, aadhaar, mobile number, email and address easily available in databases for sale and credit cards details available with mobile number, email or address being common, anyone with knowledge of spreadsheets can join these databases to profile individuals. Such datasets being available in public domain make credit card holders extremely vulnerable to frauds as many international websites/apps do not require OTP authentication before charging an Indian credit card once the user has their credit card set to permit international transactions.

Of urban Indian household consumers that experienced credit card fraud in the last 3 years, nearly 1 in 2 experienced unauthorised charges by domestic and/or international merchants/websites

With regards credit card frauds, the survey asked consumers, “What are all the different types of credit card frauds you or your family members have experienced in the last 3 years?" Some among the 4,094 who responded to the question indicated more than one option with 53% indicating “unauthorized charges levied by unknown international merchants/ websites”; 53% indicating “unauthorized charges levied by domestic merchants/ websites with whom we transact”; 41% indicating “unauthorized charges levied by unknown domestic merchants/ websites”; and 34% indicating “fraudulent transactions other than the ones listed above”. To sum up, among urban Indian household consumers who experienced credit card fraud in the last 3 years, nearly 1 in 2 experienced unauthorised charges by domestic and/or international merchants/websites.

Of urban Indian household consumers that experienced UPI fraud in the last 3 years, 4 in 10 experienced that the link/QR code sent to them to accept a payment led to a debit being made from their account

Apart from card (credit and debit) fraud, high among the other financial frauds are linked to online payments, particularly through UPI. The survey asked urban Indian household consumers, “What are the different kinds of UPI frauds you or your family members have experienced in the last 3 years?” Some among 3,273 who responded to the question indicated more than one option with 36% stating that when they “clicked on a UPI payment link from someone which debited their account instead of crediting it”; 32% shared that when they “clicked on a QR code from someone which debited their account instead of crediting it”; 24% stated that “someone hacked our UPI settings/ PIN and conducted transactions”; 20% stated that the fraud occurred when they “revealed their OTP or UPI pin to someone who posed as a bank representative/ official and their account was debited”; and 24% stated that the “UPI fraud happened in ways other than the ones listed above”. In addition, 8% did not give a clear response. In essence, among urban Indian household consumers who experienced UPI fraud in the last 3 years, 4 in 10 experienced that the link/QR code sent to them to accept a payment led to a debit being made from their account.

In summary, the LocalCircles survey has revealed that 44% of urban Indians surveyed either themselves or have someone in their family who has been a victim of financial frauds in the last 3 years. Among the urban Indians who have experienced financial fraud in the last 3 years, 43% experienced fraud with their credit card while 36% experienced fraud via UPI transactions. Nearly 1 in 2 credit card fraud victims experienced unauthorised charges by domestic and international merchants/websites. In the case of UPI frauds, 4 in 10 of those who experienced it said that the link/QR code sent to them to accept a payment instead led to money being debited from their account. The study shows that the RBI, UPI and banks issuing credit cards need to put in place more safeguards to help prevent such financial frauds. Consumer awareness needs to be created on priority for both UPI and credit card users. In addition, safeguards must be built so no Indian credit cards can be charged without an OTP authentication. For UPI, increased consumer awareness is critical. In addition to these steps, there is also a strong need to sensitise local police stations so staff their can guide citizens to file an online complaint within minutes as opposed to the current scenario where majority of the staff even in urban India is not capable of guiding a victim of online financial fraud.

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