What Are Platform Frauds & Why is PwC Urging for Comprehensive Risk Strategy in India?

A PwC report has found that the pandemic has increased "platform fraud" in India. The report highlights these alarming statistics on fraud risk pandemic-era businesses:

Accelerated Shift to Platforms: In the spring of 2020, businesses had to adapt quickly to the pandemic by converting to delivery, accepting contactless payments, and relying on platforms. However, lacking the tech infrastructure to adapt to remote business, many companies turned to platforms, and entrepreneurial innovation rushed new or expanded platforms to market to meet the need.

Criminal Innovation: Today's criminals are constantly finding new opportunities to infiltrate gaps in the perimeter. As a result, fewer than half of respondents to our survey feel they have a good understanding of their risk profile, and only a third are confident in their ability to respond swiftly to remediate a fraud event.

Lack of Fraud Prevention Controls: Perhaps most concerning, just a third of respondents believe they have the proper controls in place to prevent fraud in the first place. This underscores the urgent need for businesses to prioritize fraud prevention and invest in robust fraud management strategies.

What's platform fraud?

This novel form of economic crime involves fraudulent activities associated with social media, e-commerce, enterprise, and fintech platforms. The surge in remote work, e-commerce, delivery applications, and contactless payments has further contributed to the rise of this type of fraud.

According to PwC's Global Economic Crime and Fraud Survey, business leaders at the C-suite level are increasingly concerned about the rise in platform fraud. However, the same survey also shows a general lack of understanding among these leaders regarding their risk exposure to this type of fraud.

Fraudulent transfers to or from a platform are the most prevalent form of platform fraud, accounting for over three-quarters of all incidents. Fraudsters employ various tactics, ranging from simple unauthorized digital purchases - such as stealing a credit card number to buy goods and services - to more complex schemes such as identity theft and "triangulation" fraud.

These schemes often involve intricate plots, such as drop-shipping fraudulently purchased items to "legitimate" customers. Other scams include creating fake buyers and customers using stolen identities to obtain goods and services on credit or prepare for future schemes. Additionally, fake sellers and merchants serve as an exhaust channel for stolen cards.

Scale of platform fraud in India

According to the report, 57% of all fraud incidents in India were platform fraud. More than 26% of Indian organisations lost over $1 million due to platform fraud, and 44% of the perpetrators were found to commit fraud for financial gain. The report is titled “Platforms: The new frontier of fraud in India”.

“Platforms have emerged as a new avenue for committing economic crime. The survey highlights that 99 per cent of fraud incidents in the past 24 months have been on platforms such as financial, social media, goods, enterprises, media sharing, knowledge sharing and services," the report added.

The report suggests that preventing and detecting platform fraud requires the involvement of executives and a cohesive approach that spans the entire enterprise. A high-ranking executive should oversee the implementation of risk control policies. Risk leaders should design a strategy for identifying, assessing and responding to fraud. This includes implementing a monitoring programme to detect anomalies and being aware of spikes in an online activity or negative media coverage.

Economic crime and fraud continue to be a significant challenge for Indian companies, with 66% of organisations experiencing at least one form of economic crime in the past two years. The report notes that brand damage is another common motive cited by 32% of the surveyed organisations, followed by competitive advantage at 21%.

Threats to enterprise platforms

Enterprise platforms are a prime target for malware, phishing, money laundering and ransomware. The report warns that the threat of ransomware, in particular, has grown to an alarming level. Financial frauds on transactions made to or from platforms accounted for 89% of all platform frauds.

While technology offers potential solutions such as document verification and anomaly detection, the report notes that the key to safeguarding against this new wave of fraud is building resilience into a comprehensive risk strategy.

According to a report, India has seen a sharp increase in cyberattacks in the first three months of 2023. Over 500 million cyberattacks were blocked in Q1 2023 out of a billion attacks globally, as per the State of Application Security Report' by Indusface. Weekly attacks increased by 18% in India during the same period, against an increase of 7% globally, averaging 1,248 attacks a week.