Credit and debit card transactions have made our lives a lot easier. But beneath this seamless convenience lies the growing danger of fraud. The US cyber security firm BioCatch report indicates fraud volumes in India increased a shocking 101% in the initial five months of 2024. Interestingly, the rise in cases of frauds has gone up in sync with the increased card usage. In June 2024, India saw a significant increase in the number of credit, debit, and prepaid cards, reaching a total of 1.451 billion cards; an 11 per cent jump from the previous year, according to the India Digital Payments report. This surge was driven by increased digital adoption, festive spending, and year-end sales.
To reverse the trend of card frauds, it is important to not only prevent the crimes but being a step ahead of such clever fraudsters. Right from identity theft to phishing, methods of fraud have evolved to be cleverer and varied in reaching out to unsuspecting customers as well as reaching the payment portals themselves. Additionally, with the advent of AI, fraudsters are also using AI to develop more sophisticated attack methods.
The Anatomy of card fraud
Card fraud is not a single phenomenon; it appears in many guises, each with its own particular problems. Identity theft is arguably the most prevalent. Criminals steal personal details in order to commit unauthorized purchases, and the victims remain in the dark until extensive harm has been done to their finances. According to McKinsey Institute, 85% frauds are identity theft frauds. Online shoppers, for instance, are frequently victimized by infected websites. There are different types of card frauds, most common ones are mentioned below:
- Skimming is one of the most common types of frauds. The offenders embed devices in point-of-sale terminals or ATMs to capture card information. While specific data on skimming incidents in India for 2024 is limited, the Reserve Bank of India’s annual report highlighted that 80% of fraud cases occurred digitally, encompassing card-related frauds.
- Vishing and phishing are also very common, where fraudsters trick victims into revealing sensitive information by spoofing sites or manipulating calls. In the first five months of 2024, India experienced a 101% increase in reported fraud volumes, with nearly 40% of these cases categorized as voice scams, indicating a significant rise in vishing incidents.
- Account takeover is the most terrorizing of them all, where hackers utilize the poor authentication techniques to steal cardholder accounts, leading to substantial losses. In 2024, ATO attacks accounted for 55% of all fraud cases in India, highlighting the severity of this threat.
The Intricate problems
The fight against card fraud is further complicated by a number of factors. According to a Worldline report, the sheer number of transactions in the first half of 2024 alone, India recorded approximately 3.735 billion card transactions, comprising credit, debit, and prepaid cards makes real-time tracking an impossible task. What compounds this difficulty is the continuous improvement in sophistication among cybercriminals, who now employ the use of artificial intelligence to bypass conventional security systems.
Strengthening defenses: What can be done?
The battle against card fraud calls for cutting-edge technological interventions from banks and financial institutions. Perhaps the most potent alternative is universal adoption of tokenization. Substituting sensitive card details with tokens significantly reduces the possibility of data compromise. In 2023, tokenized transactions accounted for a 35% drop in fraud in the initial year of implementation, according to the RBI.
Given the results in such a short time, it is important to educate merchants regarding CoFT (Card-on-File Tokenization) and CoDT (Card-on-Device Tokenization) for secure transactions. These technologies render it virtually difficult for cybercriminals to abuse stolen information. CoFT keeps stored card information on merchant servers secure, and CoDT keeps data on consumer devices secure for tap-and-pay transactions.
Additionally, by effectively using AI, fraud detection systems scan transaction patterns in real time and flag anomalies that may be fraudulent. A McKinsey report in 2024 estimated how a large Indian bank reduced fraud by 40% after it adopted AI-driven monitoring tools. Not only do these systems enhance security, but they also enhance consumer confidence in the digital payments ecosystem.
Consumer awareness campaigns are also necessary. Banks must proactively educate cardholders about best practices such as monitoring account statements periodically, not opening suspicious links, and the benefits of zero-liability cover policies.
Empowering consumers: The front line of defense
Although institutions play a key role, consumers themselves must take responsibility for their own financial health. One such tool is Multi-factor authentication (MFA). It is a simple and a very powerful tool that can block unwanted access. Requesting multiple verifications per transaction adds a significant level of security.
Cardholders are also able to benefit from the greater availability of zero-liability protection offered by issuers. Timely reporting of suspicious behaviour reduces financial losses and helps law enforcement officials fight fraud more effectively. In addition, knowledge of evolving fraud methods and keeping safety guidelines in check, including the use of strong passwords and not using public networks to make financial transactions, can be very effective.
Securing India’s digital future
In further steps, banks need to make tokenization and artificial intelligence their first priority to be ahead of the fraudsters. Customers, on their part, must develop a culture of vigilance and active security protocols. The regulatory authorities too have an important role to play in making anti-fraud technologies and techniques accessible to everyone, especially to small merchants.
A secure digital payment ecosystem is not just about preventing fraud; it’s about building trust. Working together, we can ensure that the convenience of card transactions is matched by robust security, and India’s digital economy can expand without compromise.