As the country’s fintech absorption has become more immersive, financial fraud in India has become more prevalent. Fraud has significant ramifications for the individuals involved and the entire fintech ecosystem. The damage caused by fraud undermines consumer trust, stalling further adoption of digital financial services, especially in rural and semi-urban areas where trust in digital platforms is still fragile.
If we dig deep into the intricacies of these frauds, it becomes clear that identity fraud and security issues are growing like weeds. NDTV mentioned in their article that “Adhaar,” one of the most important cards Indians use to prove their identity, cannot be trusted to confirm the holder’s date of birth. And this is not it.
According to one of the leading brokers in India, 5paisa AIIMS Delhi was compromised in November 2022 by ransomware that blocked the access of 1.3 terabytes of data, impacting the hospital’s electronic medical records system. The patient scheduling and billing systems were also disrupted, leading the hospital to suspend its outpatient services for several days.
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Sketchy Onboarding Process
KYC, or Know Your Customer, is the process of opening an account in the bank, and it’s quite stringent, too! However, using the cloud has added another layer of complexity and risk. Recently, the same news outlet reported that the famous star Sunny Leone was scammed to take a ghost loan of $27, which ended up eating her credit score. Though the amount was not stupendous enough, the act itself was. The offenders only used her name and tax identity number for their mischievous act. Moreover, the news revealed that all other data, including her phone number, address, email, date of birth, and bank account, were fabricated.
This poses a very serious question: the readiness and proactiveness of the country’s digital infrastructure. If individual KYC is so unreliable, onboarding businesses isn’t foolproof either. In the past, only large retailers could accept online payments due to the high costs of cards for smaller businesses. However, over 50 million merchants now accept QR code-based payments via the widely used Unified Payments Interface (UPI), which has processed over 100 billion transactions.
Fraudulent Loan Schemes: A Growing Concern
The rapid growth of digital lending platforms in India, which have gained popularity due to their ease of access and minimal paperwork, has unfortunately also attracted fraudsters. Several fraudulent loan apps have proliferated, offering quick loans with no credit checks but exorbitant interest rates and hidden fees. These apps are often designed to siphon off money from unsuspecting borrowers, with some even using aggressive tactics like threatening or extorting borrowers for repayment.
According to the Business Standard, complaints under the Integrated Ombudsman Scheme (RB-IOS) surged by 68.2% in the financial year 2023, reaching an impressive total of 703,000. This significant increase follows a 9.4% rise in FY22 and a 15.7% hike in FY21.
The Digital Ponzi
The proliferation of digital investment platforms has made it easier for investors to enter previously inaccessible markets. However, this has also led to a rise in fraudulent investment schemes. Fake investment apps, promising high returns with minimal risk, have been reported across India. These scams operate like Ponzi schemes, where early investors are paid returns from the investments of newer ones. Moreover, these scams target first-time investors, often lured by social media influencers and misleading advertisements claiming easy wealth creation.
Combating the Fraud Epidemic
A multi-pronged approach is essential to mitigate the rising tide of fintech fraud. Fintech companies must invest heavily in advanced cybersecurity measures, including AI-driven fraud detection systems, two-factor authentication (2FA), and machine learning algorithms to detect abnormal real-time transactions. Additionally, a continuous focus must be on educating consumers about online fraud, helping them identify red flags, and ensuring they know safe online practices.
On the regulatory front, the government must push for more stringent laws and enforcement mechanisms to address the growing concerns about fraud. This includes stricter audits, data protection laws, and better collaboration between the public and private sectors to track and apprehend fraudsters.
A Call for Stronger Safeguards
India’s fintech sector has unquestionably transformed the financial landscape, bringing convenience and inclusion to millions of people. As fraudsters become more sophisticated, it is crucial for fintech companies, consumers, and regulators to work together to safeguard the future of India’s fintech industry. Only through proactive efforts in cybersecurity, education, and regulation can the sector continue to thrive and maintain consumer trust in the digital financial age.
