Payment Fraud On The Rise In India With E-commerce Growth

NEW DELHI: As more Indians step up to make online payments, there is aproliferation of payment gateways and mobile wallets, many of which are facing the risk of being misused by unscrupulous merchants.
Payment service providers like Citrus Pay and PayU claim the low interest rates offered by payment gateways — 1% compared with up to 3% — charged by credit card companies is being taken advantage of by several small traders who set up online stores and withdraw money citing fake transactions.
“We have lost Rs 4.5 lakh on account of fraud out of which one ecommerce merchant sold a used ‘car’ worth Rs 1 lakh to himself by his credit card,” said Nitin Gupta, CEO of PayU India, one of India’s leading payment gateways, which has over 30,000 ecommerce merchants registered with it.
Cash withdrawal at an ATM in India through a credit card is charged at about 2.7%-2.8% monthly, which on an annualised compounded basis comes to about 40%.
But a swipe at your own e-store will land you ‘instant’ cash at just 1%, the rate now being charged by most mobile wallets and payment gateways for ecommerce transactions.
It’s this loophole, that small time traders have found to be a cash rotating machine by opening fake online retail companies.
“In the particular case, the transaction went through but was caught as the buyer and seller account details were the same. No real sale happened,” said Gupta.
About $5 billion worth of online transactions are expected to happen this year. India’s ecommerce industry is projected to grow to over $12 billion by end of next year.
As the industry grows, companies such as Mumbai-based Citrus Pay have seen a rise in frauds.
“In Timtara’s case, the whole payments industry lost over Rs 1 crore as the merchant failed to deliver the goods,” said Jeetendra Gupta, cofounder of CitrusPay, a payment gateway. Ecommerce portal Timtara shut down last year after arrests of management, as they failed to deliver products, when they ran out of cash accepted from buyers.
The illegal practice of swiping card for cash is quite prevalent amongst the trader hubs of India.
“Legally, swiping card for cash is not allowed in India unlike in the UK or US. There have been rackets in the past that the police have busted,” said Nidhi Gurnani, cofounder of Cardback, an app which advises buyers on their credit card usage.
The other reason behind swiping credit cards for fake sales is to earn rewards. “In accelerated reward point schemes, one can earn up to Rs 20,000 on a swipe of Rs 1 lakh,” said Gurnani.
As merchants move to sell online, card for cash model is also moving to the online world. “Some ecommerce companies accept digital payments for products but instead used the cash to run operations.
Credit Sudhaar is India’s first Credit Health management & improvement company whose goal is to help clients to Restore, Enhance and Protect their Credit and make them credit healthy.
CS IdentityShield helps you to Monitor, Protect and Recover your Identity from multiple risks.
Courtesy: Economics Times