Ever since their introduction in India, digital payments and transactions have seen widespread adoption because of the ease and convenience they offer to individuals and businesses.
The Covid-19 pandemic has further driven this adoption.
The Cost of Convenience
Businesses across the country doled out innovative payment and transaction avenues for meeting the increasing demand for physical safety, speed and convenience in payments. This not only propelled the growth of the banking and fintech segments but also kept the economy afloat.
However, this convenience came with risks related to data security and fraud, further compounded by the pandemic situation. A few of these are
- Personal data theft
- Identity theft
- Impersonation
- Theft of credentials
According to the Reserve Bank of India (RBI), Indian banks recorded a 74% surge in fraud in the financial year 2019-20, exceeding INR 71 crore in liability.
Who Bells the Cat?
To a large extent, the responsibility to safeguard from fraud is placed on the individual utilizing the digital technology. However, the bulk of the onus lies on banks, companies developing fintech platforms, and the merchants offering fintech-enabled payment and transaction services to customers.
Today, the various participants in the Indian payments and transactions landscape and the regulatory stakeholders are placing increased importance on risk management. They have adopted the following techniques to combat this collective menace:
| Banks, Card Regulators and Fintech Players | Reserve Bank of India | Corporates including Merchants and E-Commerce Players |
| Real-time data analytics for fraud management | Tightening gaps in payment security systems | Installing encryption systems to combat business email compromise |
| Educating account holders in safeguarding from fraud | Urging banks and card issuers to adopt fraud management technology | Investment in access restrictions, credential control and biometric authentication technologies |
| Password-independent transactions and multi-factor authentication | Mandating face-to-face or video-based KYC using face recognition | Installing and regularly update software security systems, updates and bug fixes |
| Capping the amount per transaction | Providing guidelines on data storage, authentication, customer verification and privacy | Educating employees and customers in safe data sharing, strong passwords and safe email use practices |
| Applying machine-learning technology to identify spend patterns, detect spurious incidents and apply additional authentication layers | NFC-based payments in addition to PIN-based payments | |
| Adoption of digital signatures |
Technology and Innovation to the Rescue
An increase in fraud in bank transactions represents a corresponding increase in fraud incidents over fintech platforms (as the latter serve as lending partners to banks). It is therefore imperative to curb the fraud happening at every avenue for transaction.
To this end, technology startups are serving innovative and advanced technologies to banking and fintech providers, which they can incorporate in their products and processes to help customers combat fraud. Amongst these are the following technologies deployed for bolstering the e-KYC process:
- Advanced face recognition
- Telephone voice authentication
- Anti-spoofing and anti-fraud verification based on artificial intelligence
Amongst other technologies that address the risks around credential theft and phishing are
- Network tokenization
- Biometric-based credit cards
- Blockchain for digital payments
- Soundwave technology
- Fraud analytics incorporating neural networks and forensic capabilities
- Automation of bank transfers
Mobile handset and tablet manufacturers are urged to bundle key security standards within their devices as a means of preventing fraud. Additionally, they have been made aware of the need to bolster their device capabilities to allow for the storage and processing ability needed to run the mandated security protocols on these devices by consumers before conducting transactions.
In Summary
Fraud management is a serious requirement facing the entire bank, financial institution, business, e-commerce, merchant and fintech ecosystem. Effective fraud management requires not only a robust fraud management framework for each entity in this space, but also calls for close collaboration amongst them and enabling technology providers, and collective reinforcement of the overall security framework for payments and transactions in the country, in close liaison with regulatory and law enforcement bodies.
