The e-fraud conundrum

Online scams deserve urgent attention

One of the anomalies highlighted by an Identity and Fraud report by Experian, a data analytics company, is that Indians value security over convenience and personalisation but they suffer the highest incidence of e-frauds in the Asia Pacific. As much as 68 per cent of Indian consumers place a high degree of trust in payments system providers. But of the 590 APAC businesses surveyed, 65 per cent of Indian businesses have experienced an increase in online fraud-related losses over the past 12 months. This includes account takeover attacks and fraudulent account openings. This gap between attitude and outcome is both a pointer to the journey India has to travel between historical characteristics of informal financial networks and the challenges for modern businesses operating in uncharted territory where debates over privacy and security dominate.

 
Before Indian businesses embraced the concept of the joint stock company, commercial relations in India largely operated on an informal system of extraordinary mutual trust, which enabled merchants to operate across national and international borders. The instrument for achieving this, the hundi, offered little more than a paper IOU (no surprise, the hundi endured for decades after India imposed foreign exchange restrictions as a means for illegally accessing scarce forex). So vibrant was this traditional system of trade and transaction that the British did not interfere with it and occasionally saw fit to avail of it in the most far-flung outposts of their continental empire.

 
Post-independence India remained community-driven in its financial relations. Despite bank nationalisation and cooperative banking, which were ostensibly aimed at bringing more Indians within the ambit of the formal financial system, most Indians remain unbanked, a circumstance that explains the persistence of black money, the continuing power of the moneylender and the enduring popularity of informal financial networks such as chit funds and Ponzi-type schemes. Jan Dhan accounts do not appear to have altered this model significantly since most accounts remain inactive, barring the period of demonetisation. Most remarkably, the popularity of these trust-driven schemes endures despite the many spectacular examples of fraud over the years that have wiped out households’ life savings. This high tolerance for a trust-and-betrayal cycle explains the anomaly in Indians’ relationship with modern online service providers.

 

The findings underline the need for online service providers to significantly increase their investments in consumer education exercises to avoid the frequent incidence of fraud. Indians by now may have wised up to Nigerians offering to deposit millions of dollars in their bank accounts but large numbers of even fairly educated Indians remain curiously vulnerable to fraudsters posing as legitimate bank executives demanding PIN numbers, passwords and other identification data. The report identifies identity theft as a leading contributor to fraud in India. This underlines the issues that have been raised ad nauseam by civil society around privacy and security involving Aadhaar. Despite the Supreme Court’s 2018 ruling striking down the validity of Aadhaar for most transactions, the government had pressured organisations and citizens sufficiently for the bulk of India’s population to sign up for this unique identification project. Disturbing evidence of Aadhaar’s poor security standards emerges with depressing regularity, and the vulnerability of an insufficiently educated population to having their data suborned remains dangerously high.

 
The time may have come for the government, civil society and the Reserve Bank of India to cooperate on a nation-wide campaign to inform consumers of the hazards of online fraud and how to avoid it. Our political leaders would surely do their constituents a genuine service by leveraging Twitter and WhatsApp to such purposes rather than the current trend of spreading hatred and falsehood.