India’s popular payment system attracts scammers

Every day for the past seven years, Arun Kumar has set up his fruit stall on a busy street in Mumbai.

It’s not an easy way to make a living.

“Being a street vendor is a challenge. I am afraid of being robbed or, since I am not a licensed vendor, the municipality could come and dismantle my store at any time,” he explains.

But over the past four years, at least one aspect of his job has become easier.

“Before Covid, everything was done in cash. But now, everyone pays with UPI. You just scan the code and the payment is done in seconds.

“No more hassle with handling cash or giving change to customers. It has made my life and my business easier,” he says.

UPI, or to give it its full name, the Unified Payments Interface, was launched in 2016 as a collaboration between the Indian central bank and the country’s banking industry.

It’s an app-based instant payment system that allows users to send and receive money, pay bills, and authorize payments in one step, without having to enter bank details or other personal information. And, perhaps most importantly, it’s free.

It became so popular that India is now the largest real-time payments market.

In May, UPI recorded 14 billion transactions, up from nine billion the previous year.

But its popularity and ease of use have made it fertile ground for scammers.

“While digital payments are convenient, they have vulnerabilities,” says Shashank Shekhar, founder of the Delhi-based Future Crime Research Foundation.

Mr Shekhar says scammers use various methods to trick people, including persuading them to share their UPI PIN number, which is required to authorise payments.

Some scammers have also created fake UPI apps, which are clones of legitimate banking apps, and then steal login details or other valuable information.

“The pace at which digital transformation has taken place in the country unfortunately means that digital literacy and safe internet usage have not been able to catch up,” says Mr Shekhar.

It claims that between January 2020 and June 2023, nearly half of all financial frauds involved the use of the UPI system.

According to government figures, over 95,000 cases of fraud involving UPI were reported in the financial year ending April 2023, compared to 77,000 the previous year.

Shivkali was one such victim. She had always wanted to own a scooter, but it was out of her budget.

However, earlier this year the 22-year-old, who lives in the northeastern Indian state of Bihar, spotted one for sale on Facebook that looked like a bargain.

“I took the opportunity without thinking,” she said.

A few clicks later, she was talking to the owner, who told her that for $23 he would send her the vehicle papers.

Everything went well, and Shivkali continued to send money to the owner, through instant transfers. She eventually paid $200, but the scooter (also commonly known as a Scooty in India) was never delivered.

Shivkali realized that she had been scammed.

“I didn’t think I could be deceived because I have some training and I know what’s going on in the world. But scammers are smart. They have the art of speaking to convince their interlocutor,” she says.

The government and the central bank are looking for ways to protect UPI users from scammers.

But at present, if a victim wants to obtain compensation, they must contact their bank.

“The problem is deep-rooted,” says financial crime expert Dr Durgesh Pandey.

“Much of the blame lies with the banks and telecommunications companies. They are lax in identity checks, which is why the fraudster cannot be found.

“But the challenge for banks in particular is to find a balance between inclusiveness, ease of doing business and the implementation of identity checks. If they are too rigid, vulnerable sections of society will remain deprived of banking services.”

But Dr Pandey argues that in most cases of fraud, the bank is not entirely responsible.

“It’s a complex issue because the problem is with the banks, but in most cases it’s the victim who gives their references. I would say both the victim and the bank should bear the loss.”

Despite these problems, UPI is being promoted in rural areas where access to banking services can be difficult.

Poonam Untwal from Rajasthan runs a counselling centre that helps people use the internet and digital banking services.

“Most of us are not very educated and don’t know how to use smartphones properly. I teach them that phones are no longer just devices to talk to people, but banks at their fingertips,” she explains.

She believes that the UPI will help develop the local economy.

“Many women like me have small businesses that they run from home. We can now receive and send money using UPI. People who don’t have smartphones come to my centre to do their transactions,” she says.

In addition to establishing itself in rural areas, UPI is spreading abroad.

Retailers in Bhutan, Mauritius, Nepal, Singapore, Sri Lanka and the United Arab Emirates will accept UPI payments.

And this year, France becomes the first European country to accept UPI payments, starting with tickets to the Eiffel Tower.

Back in Mumbai, Mr Kumar is happy to no longer have to use cash, but remains cautious.

If a good internet connection cannot be obtained, customers may, by accident or on purpose, walk away without paying.

“For a small seller like me, it (UPI) has made receiving money very easy. But I am always afraid of fraud. I keep hearing in the news that UPI frauds are on the rise. Hopefully, mechanisms will be invented so that a small seller like me does not suffer losses.”