Suresh Sharma
The fast changing and innovative products being used by the financial institutions nowadays pose an increased risk of financial frauds in case the customer is not cautious and alert. Financial fraud happens when someone deprives you of your hard earned money or otherwise harms your financial health through misleading, deceptive or other illegal practices. This can be done through variety of methods such as identity theft or investment fraud where someone steals your personal financial information such as Account No., Adhaar No., Pan No. Pin etc. to make fraudulent withdrawals/investments from your account. Complaints related to banking frauds, particularly frauds through digital channels are on the rise. Fraudsters are on prowl and are increasingly using new ways and methods of frauds by which they hoodwink and defraud the innocent customers.
We need to protect the hard earned wealth to ensure our financial wellbeing and happiness. School education is simply not enough for one’s financial success in life. One has to be financially literate. Financial Literacy means the process by which financial consumers/investors improve their understanding of financial products, concepts and risks and, through information, instruction and/ or objective advice, develop the skills and confidence to become more aware of financial risks and opportunities, to make informed choices, to know where to go for help, and to take other effective actions to improve their financial well-being. The financial crisis of 2008, in which the major investment bank Lehman Brothers in the United States collapsed, developing into a full-fledged international banking crisis, triggered the need of financial literacy programmes around the world. Evidence shows low level of financial awareness, knowledge and attitude of large segments of population, in many countries.
It is recognized that financial education supported by effective consumer protection can minimize the magnitude of such crises. The study by United Nations Development Programme recommends involvement of school and college students in the financial literacy process so as to enable them to understand the financial system and to protect themselves. Reserve Bank of India has also taken several proactive measures for furtherance of financial literacy. At the instance of RBI, banks have set up Financial Literacy Centres which are mandated to conduct financial literacy camps at least once a month.
It has become all the more necessary for one to be financially literate as very innovative digital products are being launched by banks in view of Government of India and RBI’s focus on promoting digital transactions to reduce our dependence on cash. The evolution and adoption of technology has led to massive improvement in deepening digital financial services. The Jan Dhan, Aadhaar and Mobile (JAM) eco system has brought about a major shift in the universe of financial inclusion. Further, several initiatives have been taken for the creation of enabling digital infrastructure at the ground level so as to universalize digital payments in a convenient, safe, secure and affordable manner. Given the latent potential of harnessing value at the bottom of the pyramid, we have seen a plethora of players emerging in the field, ranging from traditional banks, niche financial entities such as payments banks, small finance banks, micro finance institutions (MFIs) and promising fin-tech companies.
National Strategy for Financial Education 2020-2025 (NSFE) provides a road map for a coordinated approach towards financial inclusion, financial literacy and consumer protection. The National Strategy for Financial Inclusion document lays down several milestones and action plans to be implemented in order to make financial services available, accessible, and affordable to all citizens in a safe and transparent manner to support inclusive growth through a multi- stakeholder approach.
Greater focus is now being given to addressing the vulnerable segments of the economy and population, while paying attention to consumer protection and enhancing capacity of customers, so that responsible and sustainable use of financial services can be achieved. The introduction of differentiated banks catering to the unique needs of varied population groups was a step in that direction.
The digital ID (Adhaar) along with the proliferation of mobile phones with world class payment systems have addressed the first two challenges of access and usage to a large extent. The third challenge i.e. quality, requires both demand and supply side interventions. Opening of Pradhan Mantri Jan-Dhan Yojana (PMJDY) accounts has enabled millions of Indians to have access to financial services, with a basic bouquet of financial products. This has addressed the supply side issue to a considerable extent. The demand side interventions focused on creating awareness amongst the public. Financial literacy, customer protection and grievance redressal have become areas of focus for furthering sustainable financial inclusion. Setting up of National Centre for Financial Education (NCFE) by the Regulators and implementation of the Centre for Financial Literacy (CFL) project of RBI are two recent initiatives towards improving financial literacy.
Payment systems are seen to be the lifeline of an economy. They are increasingly being recognised as a means of achieving financial inclusion and ensuring that economic benefits reach the bottom of the pyramid. It is quite well known by now that India is among the leaders in the world with regard to development of state-of-the-art payment infrastructure and products leading to a wider adoption of digital payments. To give an example, the number of Prepaid Payment Instruments (PPI) increased at a compounded annual growth rate (CAGR) of 53 per cent from 41 crore in May 2017 to 226 crore in May 2021. The trends indicate that such instruments have become immensely popular for making small value payments.
The movement towards digital payments has also been facilitated by the introduction of fast payment systems, such as Immediate Payment Service (IMPS) and Unified Payment Interface (UPI), which provide immediate credit to beneficiaries and are available round the clock. It is the responsibility of all stakeholders to ensure that the financial ecosystem (including the digital medium) is inclusive and capable of effectively addressing risks like mis-selling, cyber security, data privacy and promoting trust in the financial system through appropriate financial education and awareness. These efforts have to be supported by a robust grievance redressal mechanism.
This new scenario of banking and financial system has given rise to innumerable fraudsters to take advantage of the lack of awareness on part of the people who utilize the new financial products without fully understanding the importance of various precautions needed to be taken for using these financial products. Some examples of the modus operandi of digital banking frauds are as under:
A customer receives a call from the fraudster informing him/her that KYC of his/her bank account is pending and is asked to provide KYC details i.e. Pan No., Adhaar No. etc. After receiving the credentials, they first hack the customer’s internet banking account and get the mobile number of the customer blocked to prevent him from receiving SMS alerts about illegal transactions made by them. Customer is asked to make a transaction of small amount of Rs.10 thereafter, large scale transactions are made by the fraudster.
In another scenario, the customer is asked that verification of his mobile SIM is pending and the fraudster get the credentials of the customer by sending an SMS or through a phone call pretending to be the customer care executive of Mobile service operator. After receiving customer details, the fraudster gets a duplicate SIM issued of the same number. Following which all the SMSs and OTPs are routed to the fraudster through the duplicate SIM and fraudster makes transactions easily using M-pay app.
Of late, a new approach adopted by the fraudsters came to fore where a fraudster visits a bank branch and manages to get his mobile number updated in the customer’s account by showing Pan/ Adhaar obtained fraudulently from the customer. As a result, all the SMSs and OTPs of the account are routed to the fraudster’s updated mobile number and then innocent customer is duped.
Fraudsters make a call or send an SMS to a customer asking to download an app viz. Any desk, Quick Support, Team Viewer etc. If the customer downloads the app, the fraudster gains access to the customer’s mobile and makes payments using internet banking/payment apps.
Therefore, customers need to be extra cautious while making financial transactions especially digital transactions to safeguard their hard earned money. It is important to report these crimes to the bank branch, Cyber Crime Branch of Police and Banking Ombudsman, Reserve Bank of India without any loss of time. It is a well-known fact and also important to underline that they must keep themselves updated with latest technology and innovative products. Banks must also step up their efforts to launch awareness campaigns to educate the customers to save them from ever increasing financial frauds.
(The author is a former Banking Ombudsman, Reserve Bank of India)
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