Indians find shield against fraud: Second bank account for daily use

UPI ease spurs second payments bank accounts for daily use; AI tools like MuleHunter.ai flag 20,000 mule accounts monthly

As digital banking expands in India, so too does fraud. An amount of ₹3,207 crore was lost in 582,000 cases of cyber fraud from FY20 to FY24, according to data released by the Reserve Bank of India (RBI). The year-on-year increase in both incidents and losses is significant: 

Cases nearly quadrupled from 75,800 in FY23 to 292,800 in FY24. Total loss more than tripled from ₹421.4 crore in FY23 to ₹2,054.6 crore in FY24. These numbers highlight the escalating risk in digital banking.  

Business leaders and policymakers are educating consumers about financial fraud in digital transactions. Since millions of people use their phones for digital transactions, the banking and communication industries are concerned about the impact on growth. 

Most consumers in large cities use their salary or commercial accounts for financial transactions. Legacy banks have over the years created apps for their consumers and encouraged digital transactions. As a result, most consumers can transact and pay for services, such as utilities, with great ease. Previously, consumers had to visit offices of electricity companies or drop cheques at bank branches. Digital banking systems have provided unprecedented ease to consumers. The use of cheques has dropped significantly as companies send payments directly to employees’ accounts. For banks, the cost per transaction has dropped as their investments in retail branches and staff have reduced with the rise of digital banking. 

The increasing use of the Unified Payments Interface (UPI) has further eased matters, as consumers can connect their accounts to payment wallets. Instead of carrying petty cash, consumers use UPI-based accounts for routine and retail transactions and purchases. 

According to industry assessment, most digital frauds are of small value, but as cases rise, consumers have become wary of exposing their main savings or salary accounts. They are creating a second account with a payments bank for daily-use transactions. They transfer a small amount of money from their main account to a digital payments bank account. As a result, their main account is protected, and the exposure of the payments bank account to digital fraud is much lower. 

Companies like Airtel Payments Bank are asking consumers to rely on a second account for daily use and low-value transactions. Interestingly, payments banks were launched for digital inclusion in unbanked regions of the country, with the key facility of zero minimum bank balance. However, many urban users with primary accounts in legacy banks now lean on a secondary account in a payments bank for daily use transactions. Payments banks are emerging as a suitable option for all categories of consumers because of their business model. 

On another front, the RBI and the banking industry are using technology to weed out mule accounts that are used for fraud. The Reserve Bank Innovation Hub (RBIH), a wholly-owned subsidiary of the central bank, is working against digital fraud. MuleHunter.ai, an AI-enabled tool developed by RBIH, detects about 20,000 mule accounts every month. A mule account is a key intermediary in the movement of fraudulent funds. MuleHunter’s AI models analyse transaction patterns of more than 20 banks. “We expect that in two months, that number will go up significantly. Over the last few months, we have detected over 85,000 mule accounts, and their accuracy is between 85 per cent to 90 per cent,” said Sahil Kini, chief executive officer of RBIH, recently.  

Banks and fintech companies are introducing AI-powered behavioural analytics to monitor transaction patterns for anomalies, instantly flagging unusual activity and requiring multi-factor authentication to protect users against scams. This approach ensures that protective systems adapt faster than fraudsters, thereby boosting customer confidence in the security of digital transactions. 

A combination of smart consumer behaviour, digital banking and emerging technologies could help reduce bank fraud in the country.