India's Mt. Everest sized UPI Fraud problem

India's monopoly-NPCI-run UPI is half-a-decade old. NPCI scores zero on its awareness, willingness, initiative and competency to combat fraud. RBI must act, now.

It is hard to believe that just 10 years prior, mankind’s pride-of-tech ambition were daily deal sites, innovated by Groupon and rampantly cloned globally. Our ambition has scaled infinitely in this period and now we envision web3 and metaverse.

Times have changed, technology has progressed, building fraud and risk prevention at scale is now hygiene.

Somewhere midway 2010’s, India’s fast payment protocol NPCI run UPI was born. UPI’s growth statistics continue rightfully making headlines everywhere - from family-society-alumni WhatsApp groups to both Government & Private influencer social media handles. UPI well deserves applause.

UPI is now half a decade old and it has an unmeasurable & unmanageable fraud problem. Some may argue since it is unmeasurable, the problem does not exist, well just ask around in your extended circle from family, friends to your domestic helpers, chances are high, that unfortunately, someone, somewhere has been a victim of a UPI fraud or there-was-an-attempt.

UPI frauds are ingenious, most fraudsters leverage the “Request for funds” feature to artfully deceive the victim into completing the ‘transaction’.

Complaints pile on Twitter, a growing library of hundreds of multi-lingual Youtube videos warn people to beware, local police stations attempt to build fraud literacy via social media, just a good-old-google-search for “UPI scams” throws up sob stories from elderly couples, regular hard working people to unemployed youth falling for these scams. UPI fraud is so rampant that Netflix found it worthy of producing a series on the subject i.e. Jamtara - Sabka number aayega.

I say Mt Everest size problem, because even a-single UPI scam can be a life-changing event for many in a country with vast inequality in terms of distribution of income among the population, where the average wealth per Indian is Rs 66,280. The bottom 50 per cent of the population owns almost nothing.

NPCI has Zero mechanisms for victims to report fraud, the defrauded need to walk into their thana (local police station) with a low chance of getting their complaint registered and even a lower chance of getting their money back, than that of finding a needle-in-a-MtEverest-sized haystack. Since NPCI is hands-off any UPI consumer complaint or resolution, there is no way to tally UPI fraud in India.

The UPI fraud buck-stops-with-no-one.

Curiously, a question answered on Dec 6th, 2021 in our Lok Sabha details frauds for different in-decline-trend payment methods like net banking, cards, etc but miss listing India’s rising, darling-of-the-all payment methods, our pride UPI. NPCI does not measure, so no one knows.

Given NPCI’s monopoly over UPI protocol - should they not be solving this? Recall the tech progress mankind has made in the last decade from Groupon cloning to where we are today. Payments fraud is easily surmountable with good-old data science and machine learning technology. PayPal, Alipay which run fast payments at same scale as UPI manage and control fraud exceptionally well.

Payments are built on the trifecta of speed, convenience, and trust (via security, anti-fraud mechanisms). In my different roles, I have met seniors at RBI, from RBI Deputy Governor R Gandhi, Executive Director G Padmanabhan to three DPSS-CGM’s including Shri Vijay Chugh, Madam Nanda Dave, and Shri P Vasudevan. I have learned that RBI is always trigger happy to “circular” anything which will aid customer trust, protection and awareness, think of the two-factor-authentication circular, etc.

RBI efforts are laudable, India’s fraud rate in cards, net banking are lowest in the world.

Strangely RBI is unaware and ignorant of the fraud mess at NPCI-run-UPI. Surprisingly, RBI has let NPCI run UPI on twin pillars of speed and convenience only. The pillar of trust is missing. Is this a bug or a feature, I am unsure ?

Only RBI has the power to instruct NPCI to acknowledge the fraud problem and begin monumental work to tackle it. It won’t be easy.

I summarise in a haiku:

The UPI fraud, which

No-one-measures,

No-one-controls,

No-one-knows,

No-one-cares,

No-one.

If only,

RBI took notice,

Instructed NPCI,

To not-pass-the-buck,

To accept and take initiative,

Build and leverage technology,

To measure, monitor and control,

To surmount India’s growing UPI fraud.

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