Banks take advantage of ambiguities

It is a no-brainer that when there is an increase in digital payments, a proportionate rise in fraud is a given. But India’s payment digitisation programme has gone ahead without a requisite improvement in the infrastructure for fraud detection and prevention.

Over the past five years, the volume of digital payments has grown by a factor of 10 and an additional growth of 10 times in three years has been targetted.

This is expected to be driven by a shift from high value, low volume, high cost transactions to low value, high volume, low cost transactions, ultimately leading to a decline in cash transactions.

The Reserve Bank of India has gone on an overdrive, publicising its ombudsman role in dealing with complaints of bank customers, and it is imperative that these should include complaints of online fraud. But there has neither been a rejig of the RBI grievance redressal system nor the creation of an appropriate mechanism to deal with the problem.

The RBI has been airing TV commercials featuring members of the Indian cricket team, highlighting what it claims as the proactive approach of the banking ombudsman in dealing with customer complaints. The ad, for instance, describes the ombudsman’s role as similar to the third umpire in cricket and holds out big hope for customers.

A Bengaluru-based IT professional, who took the promise to heart, was, however, in for a rude shock when a complaint to the ombudsman about the diversionary tactics adopted by his bank, which happens to be Standard Chartered, in relation to an online fraud amounting to about a lakh of rupees, committed using his debit card by fraudsters based in Ukraine, notorious as one of the global capitals of online payment fraud, failed to yield any response from the RBI mechanism. The case has been pending since February this year and the bank keeps asking for extension to time for further investigations.

Making it even more insulting, a member of the bank’s so-called fraud detection team told the complainant that his complaint to ombudsman would only end up with the bank and that he need not expect anything to come out of it, so the man claims.

According to him, the bank has been asking for repeated extension of time to resolve the issue on the pretext that the investigation is still going on.

They expect to achieve during another extension what they could not do for eight months. The man claims that this is merely delaying tactics and he does not seem to be much off the way.

Irrespective of what the RBI has been trying to project, the typical response by the bank gives away the lackadaisical manner with which the banks, particularly foreign banks operating in India, treat communications from the ombudsman.

Perhaps, there is no point in blaming them as the phenomenal increase in the number of frauds has not drawn an adequate response from the RBI to suitably amend the terms of reference of the ombudsman to include banking frauds as well.

The terms do not even find a mention of the term online fraud and include only sweeping generalisations about the financial services provided by the bank and ‘breach of a contract, statutory obligation, industry code or principles of good banking practice’.

It is common knowledge that the contract between the bank and the customer at the time of opening the account is heavily loaded in favour of the bank as opposed to the interests of the customer.

So, more often than not, the banks manage to get away by laying the blame on the customers. When it is an issue between the individual customer and the bank, it ends up as an unequal fight between an individual and the clout of an institution and invariably the dice falls in favour of the bank. In view of this, the ombudsman ends up being a mute spectator.

Under the RBI rules, the liability of the customers to card fraud is limited and the banks are to be held responsible if the fraud occurred due to negligence on its part or a third party.

Early this year, the Kerala High Court ruled that banks cannot be absolved of liability for unauthorised withdrawals from their customers' accounts and that SMS alerts cannot be the basis to determine the liability of a customer, for there would be account holders who may not be in the habit of checking SMS alerts regularly.

But the banks continue to disregard these strictures and continue to put their customer victims to disadvantage. The situation is so bad that a panel of the RBI itself has recommended that there is urgent need to put in place a mechanism for resolving online frauds.

The Committee on Deepening of Digital Payments has, in fact, recommended the institution of ‘a next generation grievance redressal mechanism’ which will ensure speedier response to complaints.

The committee observes that as digital payments become ubiquitous, and grow in volume, the number of disputes is likely to grow as well and can easily overwhelm the payment system. It is not possible to rely on face-to-face, call centres, or e-mail to handle these disputes, it points out.

The committee has, therefore, recommended an online dispute resolution system, which is fast and fair and also includes all parties to the transaction.

Arjavi Indraneesh is a freelance journalist. Views are personal.

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