Switching to the online route: Is all well?
The thrust towards cashless banking also brings with it inherent fraud risks and challenges that users may be affected by
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The recent announcement on demonetisation has led to a flurry of people running/queuing up outside bank branches and ATMs, to either deposit their old currency notes or withdrawing any denominations they can get their hands on. What it has also inadvertently led to is a rise in individuals and businesses adopting digital technology for transactions. Case in point: E-wallet providers having reported an overwhelming increase (in the region of 200-500 percent) in overall traffic, recharges, application downloads as well as a surge in average e-wallet balance, in just one day post the announcement by the government.
While the advancement of technology in providing innovative services, combined with the explosive growth in internet banking, has permanently altered the business landscape, banks need to be aware of how to manage the associated risks that come with this territory. Cyber crime as a trend cannot be ignored. One may argue that the actual losses are, at times, not significant enough to a bank’s financials, the potentially greater impact from cyber crime is on customer and investor confidence, reputational risk, and regulatory impact that together add up to substantial risks for financial services companies. These issues ultimately have the potential to impact the reliability of a bank and in extreme cases, may lead to a systemic crisis.
Business and technology innovations that the banking sector is adopting in their quest for growth are in turn presenting heightened levels of cyber risks. These innovations have likely introduced new vulnerabilities and complexities into the overall ecosystem. For example, the continued adoption of web, mobile, cloud, and social media technologies has increased opportunities for attackers. With organisations increasingly depending on technology, it is perhaps not surprising to find that cyber crime continues to increase in volume, frequency and sophistication; as has also been substantiated in Deloitte’s India Banking Fraud Survey, Edition II. This includes ATM skimming, phishing/vishing and misuse of credit and debit cards.
Source: Deloitte study released in Aug 2015, ‘Mitigating emerging fraud risks in the mobile money industry’
As is evident from the above, most of the key root causes are a result of internal control failures around governance, IT and continuous monitoring, making regular fraud review and monitoring a mandate. With the mobile payments industry largely at a nascent stage in India, the ultimate surge in mobile platform adoption rates may be accompanied by a spate of fraud risks. Organisations therefore, while focusing on building a user base, also need to look into adopting fraud control measures. In our experience, each stakeholder in the mobile wallet value chain tends to look at risks in isolation, limiting the preventive measures to their immediate area of operations. Some of the key mitigation measures are listed below:
A more robust fraud mitigation approach would involve deriving synergies from respective stakeholders (banks, telecom companies, etc) and integrating them to build a robust, comprehensive fraud risk management framework. In our view, the success of such an integrated approach to fraud risk management in the mobile wallet industry rests on three pillars:
Effective consequence management: Organisations need to set the right tone at the top and exercise strong disciplinary action against identified suspects. It is also important to have a sound process to manage customer grievances due to fraud and transfer accountability to the party responsible for this.
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