By Dattu Kompella, Managing Director for Asia, FICO
Online payments are becoming the backbone of India’s financial system as the country transitions to a digital-first economy. From villages to Delhi – ‘Digital India’ has reshaped how citizens interact with money. However, this transformation has also brought to light a growing vulnerability: a surge in digital scams that threaten to undermine the very progress it has fostered.
Scams, particularly an Authorised Push Payment (APP) scam, occur when victims are tricked into willingly transferring rupees – with tactics that range from fake investments and legal notices to emotional manipulation. Scams are very different from traditional fraud that involves unauthorised access to bank accounts or identity theft. With the explosion in transactions via Unified Payments Interface (UPI), Real-Time Gross Settlement (RTGS), and Immediate Payment Service (IMPS), there is a staggering increase in these scams.
Reports indicate that, in the first nine months of 2024, India lost around ₹11,000 crore (US$1.32 billion approx) to cyber scams, but a more surprising number is that ₹120.3 crore (US$14.4 million approx) was lost to ‘digital arrest’ scams within the first three months of the same year. Digital Arrest Scams, which are relatively new and may be unfamiliar for many people, happen when scammers impersonate law enforcement officers and intimidate victims to transfer money to avoid legal trouble. In one instance which isn’t an isolated incident, a woman from Bengaluru was tricked into transferring ₹30 lakh (US$36,000) to scammers posing as government officials. Beyond this, romance scams, fake investment schemes, and parcel scams are also becoming common, each taking a toll on unsuspecting victims.
The escalating threat of scams in India fuelled by Real Time Payments (RTP)
UPI transactions alone jumped by 52% last year, showing just how much people are reliant on real-time payments (RTP). Scammers target the growing volume and speed of RTP transactions while also adapting their approach to carry out their schemes. The impact of these scams is concerning, not only from a financial standpoint, but also from a social perspective – left unchecked, this could hurt consumer trust, as observed in other countries where digital payments are rapidly evolving.
This threat extends far beyond individuals – impacting banks and financial institutions that are at the heart of this digital economy. Globally, banks and regulators are tightening security and operations; but as the honeypot of opportunities moves to scams, the traditional, reactive approach is no longer enough. We need a proactive strategy that anticipates threats and actively prevents them.
Legal and financial burden on consumers and banks responsibility
Digital scams are also creating a growing legal and financial strain for both consumers and banks. While victims suffer financial losses, banks face the dual risks of financial impact and reputational damage, with recovery rates often remaining shockingly low.
In India, the compensation for scam victims, especially in cases involving APP scams, is determined based on specific circumstances, and banks are not legally required to make restitution as would be the case in other countries. Take the UK, for instance, where the Payment Systems Regulator mandated both the sending and receiving banks to compensate customers who fall prey to scams, up to £85,000.
Governments and regulators are also stepping up – In India, the Reserve Bank of India (RBI) has recently introduced AI-powered initiatives designed to protect the banking system from scams, alongside strengthened cybercrime cells and public awareness campaigns for customers. Its 14C guidelines also mandates banks and financial institutions to develop and deploy better detection algorithms and provide proactive education to their customers through alerts, app notifications, and warning messages, as an added measure.
A multi-layered approach to scam prevention
There is no silver bullet for APP scams, but a multi-layered approach—involving consumers, businesses, banks, and regulators—can help reduce losses.
– Consumer awareness: Educating customers on emerging scam tactics through alerts, app notifications, and direct outreach.
– Intelligent detection systems: Implementing AI-powered, real-time fraud detection to identify suspicious transactions and flag potential scams.
– Regulatory and industry action: Strengthening policies around scam compensation, improving bank collaboration, and ensuring that financial institutions have the tools they need to combat fraud effectively.
With scams becoming increasingly sophisticated, now is the time for financial institutions to take proactive steps in securing digital transactions. A collective effort across the ecosystem will be critical to protecting consumers, safeguarding trust in digital payments, and ensuring India’s financial system remains resilient in the face of evolving threats.
