Payment aggregators to create 'negative' database to tackle digital fraud

The proposed database, to be made accessible to all licensed payment aggregators, will work as an early warning system to help prevent fraud and reducing risks to merchant and consumers

Payment aggregators are planning to create a "negative database" to address the increasing incidence of payment fraud. This database will contain information on fraudulent transactions involving both customers and merchants, according to a report by The Financial Express (FE).

The proposed database, to be created as a centralised repository, will be accessible to all licensed payment aggregators, helping them detect and prevent fraud. If a fraudster attempts to use the same card or carry out similar fraudulent activities across platforms, payment aggregators can detect the fraud before it affects their systems.

The development is significant as cases of digital payment fraud have increased with a rise in internet penetration and the growing number of online transactions. According to the Reserve Bank of India’s (RBI) annual report, cases of online payment fraud surged fivefold in 2023-24, with cybercriminals defrauding people of Rs 1,457 crore.

Currently, there are nearly 60 payment aggregators in the country, including Amazon Pay, Razorpay, PayU Payments, CCAvenue, and BillDesk. “When we see a particular card number being used for a lot of frauds, it can be shared with certain other aggregators,” Vishwas Patel, chairman of the Payments Council of India, told FE. This early warning system would help prevent fraudsters from exploiting multiple platforms, thereby reducing the risk for both merchants and consumers, he added.

Separately, the negative database will also contain a list of merchants with a history of fraudulent activities. Usually, fraudsters switch from one payment gateway to another to escape getting caught. However, the new database will put an end to this menace as payment aggregators will not onboard errant merchants.

Who will create the negative database?

The negative database will be created by a self-regulatory organisation (SRO), for which the Payments Council of India has already applied to the RBI. In addition, the SRO will also push industry members to share their data. Currently, payment aggregators do not share information regarding fraudulent transactions with each other.

Payment aggregators receive payments from customers, pool them, and then transfer funds to merchants. Such platforms also help businesses and individuals accept payment through various methods.