Mitigating Emerging Fraud Risks in India’s Mobile Money Industry

> Posted by Center Staff

Globally, the cost of fraud in the telecoms industry amounts to about 2 percent of total revenues, roughly US $46 billion. In the mobile money segment, it’s estimated that about 2 to 3 percent of revenues generated from phone-based banking are lost to fraudulent activity. In India, where the mobile subscriber base is over 980 million individuals, covering over 70 percent of the country’s population, mobile money presents a big opportunity for banking the unbanked. And awareness of this is catching on. Just this week Paytm, a mobile wallet service in India backed by Alibaba’s financial arm, announced that they’ve surpassed the 100 million client mark.

As more individuals are brought into the mobile banking fold, including those of lower income levels, it’s increasingly important that fraud risks are thoroughly managed. If they aren’t, clients will suffer, and so will their perceptions of formal banking services. A new report from Deloitte investigates the risks facing India’s mobile money market and how to best manage them.

The report outlines and offers the root causes of seven categories of fraud: phishing fraud; intrusion/ cyber attack; access to wallet through unauthorized SIM swap; fake KYC; commission fraud by agents; and application manipulation by authorized users. (The latter two are frauds carried out by internal stakeholders, like agents, employees, and third-party vendors.) As one example, in the case of phishing (when fraudsters dupe customers through phone calls/SMS/emails to share sensitive information), the root cause is inadequate customer awareness around information sharing and customer data theft.

Here are some of the key messages from the report:

  • Mobile application downloads in India have grown by 75 percent (compound annual growth rate) in the last three years, and among the fastest growing app categories is e/m-commerce.
  • Fraud risks exist in every mobile money service around the world, but they can differ based on market dynamics.
  • The primary root causes of fraud are the result of internal control failures around governance, IT, and continuous monitoring.
  • Stakeholders in the mobile money value chain tend to look at risks in isolation, limiting preventive measures to their immediate area of operations.
  • A robust fraud mitigation approach would involve deriving synergies from respective stakeholders (banks, telecom companies, etc.) and integrating them to build a comprehensive risk management framework.

For more details, including on comprehensive risk management frameworks, read the report, here.

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