RBI Revels Frauds worth ₹1,750 crore Reported by Banks, Payment Operators in the Last Seven Months

Online payment fraud has been on the rise in India, with banks and payment operators reporting frauds worth ₹1,750 crore in the seven months leading up to March 2023. The Reserve Bank of India has revealed that the fourth quarter of this period saw payment frauds of over ₹800 crore being reported under a new format of fraud reporting. While the volume of transactions involving Internet and mobile apps was high during this period, the amount of fraud reported shows a vulnerability in the system.

According to payment sector experts, while the fraud amount may not be as significant when compared to the volume of transactions, it highlights the need for better security measures in the payment sector. The new format captures e-commerce transactions, transactions using FASTags, digital bill payments, and card-to-card transfers through ATMs. However, the data from November 2019 onwards for card payments and prepaid payment instruments (PPIs) may not be comparable with earlier months or periods, as more granular data is being published along with revisions in data definitions.

Card and internet frauds were just ₹87 crore involving 2,321 frauds during the April-September period of 2022-23, according to the RBI's Report on Trend and Progress in Banking. Transactions involving mobile apps were worth ₹233 trillion during the year ended March 2023, while net banking transactions were worth ₹915 trillion, and ATM cash withdrawals were worth ₹33.04 trillion during the fiscal, according to RBI data.

Steps to Mitigate Cyber-threat

With payment fraud still an issue, the RBI has switched the fraud reporting module to DAKSH, the Reserve Bank's Advanced Supervisory Monitoring System, with implications from January 1st, this year. The interdependent nature of various payment instruments, acquiring bank operations, and gateways for payments exposes any counterparty's paytech methods to cyber threat and a risk of fraud at the entity level, said Krishnan Chari, Chief Risk Officer, Worldline India, in an interview with The Financial Express.

Even though policymakers establish guidelines for paytech institutions to follow in terms of scams and cyber risk mitigation, it is also critical that a systemic risk management strategy for payment and mediation platforms be created along the lines of the Basel Committee's systemic risk framework. The national payment systems risk framework should take into consideration the interconnection of banks, non-bank payment processors, payment aggregators, and retail payment settlement systems such as NPCI.

Evolving Scammers

Fraudsters have been using innovative methods to defraud people, especially those who are new to using digital platforms and are not familiar with the techno-financial ecosystem. Recently, Punjab National Bank warned customers about a new form of fraud attempt by scammers. They said that a message is being circulated on the internet inviting people to invest in a policy named, "PNB's 130th Anniversary Government Financial Subsidy." The banks declared that these messages are fake and that the PNB bank name is being circulated to perpetrate different types of fraud.

In conclusion, payment fraud is a significant concern for both the banking and payment industry, and the regulatory authorities in India. The RBI's move to migrate the fraud reporting module to DAKSH is a step in the right direction. However, more measures need to be taken to strengthen the security of the payment systems in the country. This includes the development of a systemic risk management framework for payment and settlement systems, taking into account the interconnectedness of different payment instruments, acquiring bank operations, and payment gateways. Additionally, it is essential to educate people about different types of fraud and how to stay safe while making online transactions.