39% of Indian families surveyed confirm experiencing some type of online financial fraud in last 3 years; Only one fourth of them were able to get their funds back

May 2, 2023, New Delhi: Representatives of the Reserve Bank of India, Indian Banks’ Association, National Payments Corporation of India and the Indian Computer Emergency Response Team under the Ministry of Electronics and Information Technology are scheduled to meet on May 3rd to discuss ways to protect consumers and businesses from cyber fraud. While the average amount of money involved in a banking fraud has declined sharply, overall incidents of fraud are on the rise, according to the Reserve Bank of India's Trends and Progress in Indian Banking report released in December 2022. A total of 5,406 fraud cases were reported in the first half of FY 2022-23, as opposed to 4,069 such cases reported in the first half of FY 2021-22. The cases pertained to Rs 19,485 crore worth of fraudulent activity in first half of FY2022-23, which is markedly lower than the Rs 36,616 crore worth of fraud in first half of FY 2021-22. "In terms of the number of frauds, the modus operandi shifted to card or internet-based transactions. Additionally, cash frauds are also on the rise," the report said.

Frauds reported in a year could have occurred several years prior to year of reporting, according to the RBI. At ₹18,746 crore, loan-related frauds clocked the biggest share in the first half of FY2022-23, as per RBI data. "Based on the date of occurrence of frauds, advances-related frauds formed the biggest category prior to 2019-20. With the exponential growth of digital payments and expanding digitalization of the financial ecosystem, cyber security risks for financial institutions are also increasing, the central bank report states.

Given a sizable number of posts and comments received on the subject of online financial fraud on LocalCircles, the platform after its widely referred 2022 survey decided to conduct another survey in 2023. The survey received nearly 32,000 responses from families located in 331 districts of India. 66% respondents were men while 34% respondents were women. 39% respondents were from tier 1, 35% from tier 2 and 26% respondents were from tier 3, 4 & rural districts.

Nearly 4 in 10 respondents admitted that they or their family members had been a victim of financial fraud in the last three years

The first survey question asked citizens “Have you or someone in your immediate family been a victim of financial fraud in the last 3 years?” Nearly 4 in 10 out of 11,873 respondents to this question admitted that they or their family members had been a victim of financial fraud in the last three years. The data shows 30% of those surveyed had one member in the family who had been a victim of financial fraud while 9% indicated that multiple members in their family have been subject to financial fraud in the last three years. Of the remaining 57% were thankful they or their family members had escaped such an experience and 4% gave no clear response.

Slight reduction observed in percentage of families who reported experiencing financial fraud in the last 3 years with 42% in 2022 reducing to 39% in 2023

When compared to the LocalCircles survey response to this query last year there is some improvement as the number of families who have fallen victim to financial frauds has dipped. The data shows that as against 54% respondents who indicated that they or their family members did not face any such situation, this year there are 57% such respondents. Similarly, in the case of respondents who had had one family member defrauded, the percentage has dipped from 38% last year to 30% this year. However, as against 4% of respondents last year who indicated that multiple members of their family had become victims of financial frauds, this year the percentage has risen to 9%.

23% of respondents who faced financial fraud experienced credit/debit card fraud; 10% indicated ATM card fraud while 10% experienced bank account fraud

The next survey question asked respondents “What are all the kinds of financial frauds you or someone in your immediate family has experienced in the last 3 years?” Some among the 11,261 respondents to this query indicated more than one type of fraud. The largest group of 23% indicated credit/ debit card fraud; 13% indicated fraud by buying/ selling/ classified site users; another 13% indicated fraud by websites taking money for products (not delivered); 10% indicated ATM card fraud; another 10% indicated bank account fraud; and 16% indicated other frauds. In addition, 3% of respondents gave no clear response.

Of the families who experienced financial fraud, 24% were able to get their money back while 70% could not get any resolution

The hassle of filing a complaint, reluctance to lodge a complaint by authorities and then no action by them even when a complaint is filed, are some of the many reasons why many financial frauds go unreported. The next survey question sought to know from citizens who had faced financial frauds whether they had filed a case and “did they get their money back”? This query received 11,305 responses with only 24% indicating that they were able to get back their funds while 70% could not get any resolution to their complaint. The data shows 18% filed a complaint with the designated platform or entity and got back the money and 6% filed a complaint with authorities and got back the funds. However, 41% indicated that the “matter is still pending”; 17% feel helpless stating “there was nowhere to go”; 12% of those surveyed admitted that they decided to not even file a complaint”; and 6% gave no clear response. These are all cases where the transaction was online and accountable. If one starts looking at cash related fraud, the number of cases are likely to be several times of what is being reported with online financial frauds.

A comparative study with the response received last year shows that while the percentage of families reporting financial frauds has slightly reduced in 2023 compared to 2022 (previous 3 years), the percentage of those reporting credit/ debit card frauds have risen from 18% last year to 23% now.

However, families reporting bank account frauds have dipped from 29% in 2022 (previous 3 years) to 10% in 2023.

Percentage of families reporting bank account frauds have sharply dipped in 2023 versus 2022 (previous 3 years)

What is promising is that the percentage of families who have reported financial frauds and were able to get back their funds has risen from 17% in 2022 to 24% in 2023 (previous 3 years), which shows that both the platforms or entities and the authorities are taking more timely and effective action than they did 12 months ago.

Percentage of families who reported financial frauds and were able to get their funds back rose from 17% in 2022 to 24% in 2023 (previous 3 years)

In summary, the fact that 39% of respondents admitted that they or their family members had been victims of financial fraud in the last three years shows that more financial literacy and awareness about the safeguards need to be in place. The survey data shows 30% of those surveyed had one member in the family who had been a victim of financial fraud while 9% indicated that multiple members in their family have been subject to financial fraud in the last three years. The survey also reveals that the largest group of 23% indicated credit/ debit card fraud; 13% indicated fraud by buying/ selling/ classified site users; another 13% indicated fraud by websites taking money for products (not delivered); 10% indicated ATM card fraud; another 10% indicated bank account fraud; and 16% indicated other frauds. As previous LocalCircles surveys have revealed in the past, people make themselves vulnerable when they hand over their credit/ debit cards to family members and staff with the passwords to withdraw money or store their sensitive information in the mobile phone or laptops, which if stolen or misused by others can often lead to financial frauds. The survey also reveals that while 24% of those surveyed were able to get their funds back, 70% could not get any resolution to their complaint. In many parts of the country, there is limited awareness amongst police on how to go about complaints of online financial frauds. In many cases the victim is often discouraged to file a complaint. The Government and RBI need to step up efforts to promote financial literacy at this juncture when digital transactions are growing rapidly but making people more vulnerable to online financial frauds. And awareness of citizens is one aspect that needs attention, the other aspect being authorities where State Governments need to sensitise police forces at station levels on how to register an online financial fraud complaint.

LocalCircles will share the findings of this study with key stakeholders so needed actions can be taken to reduce financial fraud in the country.