India's first-world digital infrastructure and financial inclusion, which has brought access to digital banking, payments, health, and credit services to almost 500 million people, are widely acknowledged. However, this technological progress has also led to a new threat: cyber fraud. India now ranks among the largest victims and perpetrators of cyber fraud worldwide.
A 400% increase in payment frauds, cases where 125 young boys are collectively duped out of ₹1 crore, life savings lost to phishing fraud, and credit scores plunging due to fake credit fraud - these are some of the headlines we are unfortunately becoming accustomed to. Cyber fraud is burgeoning into a digital pandemic that doesn't discriminate.
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In a country where 60% of the population lives on less than $3 a day, any scale of cyber fraud poses life-changing consequences for the victims.
Cyber fraud manifests in several ways, but one insidious practice is money mule fraud. This scam exploits individuals, often from low-income backgrounds or facing financial hardships, by luring them into unwittingly facilitating money laundering activities. The consequences are devastating, with victims facing not only financial losses but also blocked accounts, legal actions, and a damaged credit history, leading to financial exclusion.
Often, the unwitting victims are not even aware of the nefarious activities taking place through accounts opened and transactions done in their name. Today, for less than 50 rupees, one can buy someone's real identity from several social platforms and chat groups. This allows a fraudster to obtain credit and payments in someone’s name, deposit them in another victim’s bank account, and transfer the illicit funds to crypto or popular gaming tokens, all in a few hours. This is possible because a lot of our identity and transaction data is out there due to multiple data leaks that continue at an alarming rate.
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While it may seem that cheap access to technology is enabling billions of dollars of fraud, the real victim here is digital trust, the scale of which is hard to quantify. Victims lose money, digital platforms lose customers, regulators increase compliance, but everyone loses trust. Banks, lenders, and digital platforms, burdened with increasing compliance and fraud detection requirements, become wary of onboarding new customers, hindering inclusion efforts, and pushing vulnerable populations back towards informal channels.
With the advent of new AI tools, deep fake scams have already begun and will become a new wave that the financial ecosystem will have to counter.
The menace of money mule scams and cyber fraud continues to grow, only because fraudsters are able to exploit loopholes that exist at the intersection of technology, human vulnerabilities, law enforcement, policy, and business models. It requires a concerted effort from all stakeholders - the government, financial institutions, technology providers, and internet users.
Only together can we ensure the gains made in financial inclusion are not lost to the shadow of fraud. The right to access is a noble cause that the government and the financial ecosystem championed in the last couple of decades. The right to protection is a cause that will soon need to be championed by the stakeholders as well.
Digital platforms should design customer journeys where compliance, fraud detection, and security are not siloed cost functions, but unified as growth functions.
This requires proactive investments in predictive machine learning models, data sharing industry collaborations, and real-time reporting. Recently, Meta, Coinbase, and a few other leading platforms came together to fight fraud by sharing data, and use of technology with each other.
RBI, Ministry of Home Affairs, I4C, NPCI, and multiple other policy-making agencies have taken commendable customer education initiatives, and new legislations such as the DPDP act are encouraging steps. Clarity on enforcement, legal deterrence, and victim support would go a long way in building trust.
The scale of India’s digital success and financial inclusion has reached far and wide. It's time to ensure the protection and security reach the last mile as well.
Ranjan R Reddy is Founder & CEO, Bureau
