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Combating the Rise of Emerging Scams and Fraud in India

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By CK Leo, FICO’s lead for fraud, security, and financial crime in Asia Pacific

India is one of the most receptive nations in the world toward digital banking. According to a FICO survey, 95 percent of consumers in the world’s second-most populous countries do all or most of their banking online. This nation is equally open to new digital banking services. Bank customers in India have been keen adopters of real-time payments, with a 78 percent uptake this year, a level significantly higher than customers in leading economies such as the U.S. (26%) and Germany (20%).

The convenience afforded by digital banking has seen its popularity grow significantly
during the pandemic, but this has also made it a honeypot for fraud. Scammers are attracted to the increase in money flows, growth in some inexperienced users, and
finding new ways to con consumers online where money is transacted.

Top Fraud Threats in India
As customers in India embrace new technology-based banking services and new ways
to send money in real time, they are faced with other fast-growing fraud threats. Real-time payment systems such as India’s Unified Payments Interface (UPI) have been a prime target for fraud as transaction volume on the platform grows at a breakneck pace. One of the issues is that the platform is often used for transacting small dollar amounts, where hardly any authentication or verification checks are used, making users more vulnerable to fraud.

Authentication checks may also have limited efficacy when fraudsters manipulate
consumers or individuals at a business to transfer money to a bank account controlled
by the fraudster, also known as Authorized Push Payment (APP) fraud. The complexity
of such scams is that victims are deceived into authorizing these payments themselves,
which makes it particularly difficult to detect and prevent.

What’s concerning is that not all customers may be aware of the risks involved in new
banking services like real-time payments. As money is transferred nearly instantly, to a
peer or to a merchant, it means that victims don’t have a window of time where they can
try to reverse a payment once they realize they have been conned. Fraudsters also
swiftly launder it through multiple accounts, making it difficult to trace.

FICO’s survey revealed that Indian consumers were the most aware of the threat of
Authorized Push Payment fraud. Fifteen percent of Indians said it was the type of fraud that concerned them the most. This was much higher than the U.S. (4%), the UK (7%),
Indonesia (3%) and Thailand (8%).

Given that 80 percent of Indians plan to increase the use of real-time payments, it demonstrates the emerging threats that scams pose and the need for banks to up their
banking security game and adopt real-time fraud prevention.

How To Tackle Existing and Emerging Scams
While it’s important to provide customers with the convenience of instant transfers, banks need to engender trust in these systems. Protecting real-time payments requires analytics that looks for changes in customer behavior such as user accounts or devices outside of their usual habits, as well as the usual anomalies such as the time of day or frequency of a transfer. The use of targeted profiling of customer behavior to spot scams yields some impressive results with 50 percent more scam transactions detected.

Beyond these analytics, communication with customers at the right time is also essential. We know scammers rely on creating a sense of urgency so the ability to dynamically add a ‘break’ into the transaction gives the customer thinking time and a way to back out of making the payment.

Consumer education is another important tool that banks can leverage to make customers more aware of this type of fraud. By regularly communicating with customers, banks can provide useful advice on fraud prevention and practical checks individuals can follow to protect themselves. It is also crucial that banks encourage customers to keep their contact information updated so that they receive timely fraud alerts.

While scams that trick customers into sending money are currently an area for concern
other types of fraud where criminals use people’s card details or takeover their accounts
also have a significant impact.

The many and varied ways financial scams are executed, means that multi-layered security safeguards are necessary to protect customers, businesses, and banks.

For example, sophisticated digital identity and authentication solutions create a stronger
level of security across products and channels. In India, text messages (42%) remain the customers’ top choice to verify payments because of convenience. But this first-generation verification method can be easily compromised with scams such as “sim swap” where a fraudster gains access to your SMS one-time-passwords by tricking your phone company into activating a SIM that they control.

As customers transition to other channels like third-party messaging and banking apps
for payment verification, banks need to consider multiple factors of authentication for a
layered approach to security. This includes using the tools available to them, such as biometric authentication which consumers are increasingly familiar with such as fingerprint and facial recognition.

Another key recommendation is to reduce information silos. Effective fraud prevention
depends on having a single view of the customer, their transactions, and their behaviors. For banks that have different solutions for transaction monitoring and fraud, it is important to remove these silos and overlapping functionality and work collaboratively. Integrated
solutions can move more quickly to spot suspicious transactions across different lines of
business, accounts, channels, and devices.

Using AI and Machine Learning to Stop Fraud
With the sophistication of scams evolving rapidly, banks need to strategically innovate with the cutting-edge scam, detection analytics to effectively combat fraud.

Artificial Intelligence (AI) and machine learning-driven analytic technologies include
sophisticated behavioral biometrics capabilities and scam detection scores that can help
spot and prevent fraud. By analyzing customer and contextual data from a range of sources and behavioral biometrics, these technologies can significantly improve detection accuracy, identify types of fraud taking place, and inform decision-making in
real-time to stop fraud quickly.

It is becoming increasingly clear that siloed, on-premise, single-focus solutions are a
significant loophole exploited by criminals. They test everything from how authentication checks are made across products and channels to what types of activities and dollar amounts trigger verification checks.

An integrated, enterprise-wide fraud platform enables banks to design and adopt rules
dynamically to emerging fraud types and execute machine learning models based on
targeted profiling of customer behavior to determine what’s a scam and what’s normal
banking activity.

Ultimately, this is a win-win as Indian banks can improve operational efficiency, reduce
losses due to fraud, and achieve higher levels of customer satisfaction.

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