Digital Financial Services – Risks for consumer


In 2015, CGAP (the Consultative Group to Assist the Poor, a global partnership of 34 leading organizations that seek to advance financial inclusion) identified various risks faced by mobile money user, which include inability to transact due to network/service downtime, insufficient agent liquidity, complex user interfaces, poor customer recourse, non-transparent fees, various frauds targeting customers and inadequate data privacy and protection.

Increasing digital penetration in countries got leveraged by financial services to improve financial inclusion and inclusive development status of the country. In simple terms, Digital Financial Services (DFS) refer to all those financial services which are dependent on digital technologies for its delivery and consumption. DFS are primarily demanded by young generation due to its lower costs, high speed and availability of more tailored financial services. New entrants in the financial sector including Fintech firms, neo-banks, peer-to-peer lending platforms, online lenders, e-commerce platforms, social media providers are main players in DFS now. Banks, insurers, and asset managers are also expanding their financial services through digital platforms.

Newly emerged digital products and delivery channels have transformed consumer risk exposure, primarily for inexpert and vulnerable DFS users. Due to demonetisation (in India), Covid pandemic, usage of digital finance has increased rapidly. In India UPI payment systems are broadly accepted and see good growth, it recorded 17.9 million digital transactions per month in 2016, raised up to 1.3 billion per month in 2020. The increase in volume and value of digital transactions also increased the possibility of digital frauds; most common are data misuse and fraud.

These embrace mobile app fraud in which fraudsters make forged mobile applications and lure mobile users to use their bank details for making any payments, receive some payments, get government subsidy, etc. Few other issues like fake identity fraud, where new identities are created by blending personal information from several individuals; biometric identity breach and theft of physical or behavioral human data; algorithmic bias, which may occur when a computer program creates biased outcomes or discrimination against particular groups of people; and authorized push payment scams, which takes place when a customer is forced to transfer money to fraudster account, on their pretext of being a genuine payee.

Expansive reach of digital technologies and modularization of the financial services industry have worsened the situation. Other consumer risks such as SIM swap fraud, aggressive marketing and debt collection practices, data breaches and poor dispute resolution added more to problems to financial ecosystem. Recent reports by TransUnion highlighted that 28.32% hike in the share of suspected fraudulent digital transaction were attempted in India between April 2020 to March, 2021. Report also mentioned that out of all highest share of suspected digital fraudulent transactions originated from Mumbai, Delhi and Chennai.

RBI, SEBI and other financial transactions governing bodies in India are working to strengthen the procedures and policies related with DFS. Along with all the technical safeguards which are being used by DFS providers, its high time for DFS users to be aware about these risks and pay proper attention which making transactions on digital platforms. Robust passwords with multifactor authentication are advisable for safeguarding financial transactions.

Users should be vigilant on receiving an unsolicited SMS/call mentioning the warning of account block and asking for KYC details. They should be aware that KYC update will never happen via a third-party app, the same should only be provided to bank or card issuers. One must be very careful while posting their personal details on social media platforms or replying to phishing e -mails as this information can be used for SIM swap where fraudster can access consumer’s OTPs, financial accounts and card related alerts on victim’s phone.  Frauds can also take place via information posted on C2C websites. Con can show interest in targeted victim’s product and call him to show his/her intention of sending money to buy the product. In order to receive money in the account they may ask for an OTP received on victim’s phone.

Along with all these safety measures, setting transaction limit on cards and saving account may also help to provide protection against any online or offline financial forgery.  Banks may also allow customers to switch on and switch off their debit and credit card, rather than blocking it one time and then all paperwork and institutional formality to get a new one. One can temporarily put their cards switched off when it is not being used.

Consumers must keep in mind that apart from providing convenience is using financial services; DFSs have their significant role in helping governments to reach businesses with emergency liquidity. It provides financial services to those people for whom banking and financial services are not accessible. It can generate transparency in earning and expenditure and may create credible information about economic status of people. Although, Infrastructure development for increasing accessibility of mobile and internet network is another prime prerequisite for growth of DFS. It has become inseparable part of today’s world. It is important for financial regulators, telecom operators and central payment system authority to ensure best risk management for all consumers. Along with infrastructure, stakeholders need to focus their efforts on financial education, financial literacy and cyber related risk awareness. Few countries have included this as a part of academic curriculum, India being largely populated by youth, this step may help all.

Dear Customer / Reader,

We all are reading about instant loan apps which are involved in illegal lending and unfair recovery cc practices. Since these apps are not registered with the regulator (RBI) for any sort of lending, we urge our readers not to fall prey to such unauthorized platforms. These apps are unlawful and take wrong steps when comes to collection using the data on the mobile phones of customers.

RBI has warned individuals and small businesses against falling prey to an increasing number of unauthorized digital lending platforms.

In the current scenario, we would like to state the Monedo Financial Services Private Limited, a registered NBFC under RBI has no customer app and all lending and collections are done in legal and ethical ways as prescribed by RBI.

We only lend to customers as per internal policies and thus request customers to be aware of the same and loan amount depends on our proprietary algorithms depending on customers ability to pay. Our internal policies and practices ensure ethical lending and recovery.

Monedo cautions against loans being offered by unauthorized digital platforms, mobile applications promising a quick and hassle-free process. Please do not trust any messages, links, online forms, calls and apps asking for any payments impersonating as Monedo Financial Services Private Limited, to avoid any such mishap beware of hoax/fraudulent activities. These platforms always have hidden charges, adopt unacceptable high-handed recovery methods and misuse agreements to access data on mobile phones of borrowers.

Consumers should never share copies of Know Your Customer (KYC) documents with unidentified persons, unverified/unauthorized apps and should report such incidents at [email protected] and 022-6817 3300 for queries and questions. Transact only through genuine channels or through our company executives and authorised partners.

We abide by the regulations and guidelines by The Reserve Bank of India with no exceptions.

We will continue to strive to keep this service ethical and within regulatory parameters at all times.

We look forward to being your trusted partner in terms of need.

Team Monedo Financial Services