The invisible threat: Understanding and Combating Online Scams in India
Innovative Business Models to Solve Direct Consumer Scams
Digital Scams
The online fraud and scam market in India is growing at an alarming rate and has an estimated market cap of ~ 15 billion $. WhatsApp has become a breeding ground for online scams with new types of scams emerging every day. Businesses can still solve this problem of scams but no one is incentivized to solve the direct consumer scam problem. Let’s take a deep dive into the problem and potential ways to solve this problem :
How Scams Work?
Step 1 - Determining Target Consumers
Scammers reach out to potential users by leaking consumer data in the black market due to negligence in privacy laws by private companies which enables Sensitive consumer PII data to be available and ridiculously low costs. They have access to the demography and financial data of the consumer and after doing some data analysis they will figure out who should be reached.
Eg: if scammers have your phonebook data they will figure out your parent’s phone number and contact names on your contacts list and reach out to them in your context that some bad criminal stuff has happened to you and will ask them for money.
Step 2 - Reaching Target consumers
Primary methods of reaching out to consumers are phone calls, WhatsApp, emails, and others. In India WhatsApp is the primary channel to reach out to both for calls and messages and due to the lack of any surveillance in this channel it is very easy to trap consumers over here. While phone calls have some basic safety features due to true caller about calls such things cannot be built on WhatsApp due to the lack of relevant APIs.
Step 3- Psychological Manipulation of Consumers
Scammers play on two basic human emotions of greed and fear to trap users to make an instant decision and transfer money to the scamster. Even very literate young people have the fear of investigative agencies and easily fall into this trap. The scammers pose themselves as police/government officials and try to extort money from normal consumers.
Step 4- Money Transfers and False Trails
Once the online transaction is done to the fraud account then the scammers will make multiple transfers of the money to multiple different accounts with names of people who are not involved in scams. This creates a false trail making the recovery work very difficult. Think of the money as a message and it propagates to different accounts within no time. Suppose if you got scammed for 50k then 1k each will be transferred to 50 accounts which in turn will be transferred to another 100 accounts leaving a very fuzzy trail.
Step 5- How do consumers report cases?
There are 2 different steps to this funnel :
Consumers who get scam calls but do not report these cases as the scam did not happen to them and also the digital infrastructure for reporting is currently tedious and some people also do not see any general good in reporting these cases due to basic human behaviour if it did not happen with me I dont care.
Consumers who get scammed a big percentage of these cases do not get reported to law enforcement due to fear of dealing with law enforcement and people are ok with losing this amount.
Step 6- Fraud Amount Recovery
Only 10% of the fraud amount is recovered due to a lack of will/infrastructure/manpower from the law enforcement agencies and requires multiple follow-ups by the user and ultimately most consumers end up foregoing this. This is another big problem that makes the scamsters more bold. Also with the rise in different types of scams, law enforcement agencies are not able to keep up with these new scams, and hence a lot of people will get scammed before the word gets out.
What are the key challenges for solving direct consumer scams?
Scams and frauds are law enforcement-related problems and hence the onus of solving these problems lies on the government as citizens pay taxes for these types of services from the state.
Consumers paying for scam prevention services are low because consumers do not have a proactive approach to these things but since it’s a low occurrence it is a more reactive approach. So willingness to pay for scam protection is very low.
The cost of marketing consumer businesses is high and hence without a very proven business model very difficult to build such products.
How can we solve direct consumer scams?
Privacy Protection - According to recent data, around 75% of users have chosen not to allow apps to track their activity on Apple devices. The problem with Google and Apple is by not sharing these details they are hurting their ads business and hence there is room for a 3rd party app to be built around this which protects the user. To solve this :
The government regulates a law for Android and IOS and makes the user permission necessary by default to access their activity and details
Companies use PII solution providers like Skyflow to safeguard user data and get financially punished in case of a breach of user data.
A direct B2C consumer app that protects the sensitive data of the user to be accessed by different devices.
Universal Scam Reporting Interface - This can also be a part of India’s digital stack where multiple social companies and users can report different scammers on this universal blockchain-powered database which has exposed APIs”s which can be used by any app building for scam protection. Closed apps such as WhatsApp would need to expose their APIs for 3rd party consumption to build scam-prevention apps on top of WhatsApp.
Scam insurance - This is a preventive way to protect against the financial implications of the scam. The challenge here is whether users will adopt a preventive approach or not. On the flipside, these companies can work with law enforcement to recover scam money and hence can reduce their cost of insurance to the consumer enabling massive adoption.
Payment Infrastructure - Identifying these risky transfers and preventing the rapid movement of money to different accounts is key. This is more of a government regulation where banks need to prevent rapid successive transfers of money for some time after a suspicious transaction. The ease of reporting such cases needs to be improved.
Scam Recovery Collection - Just like lending collection, there is a play over here for scam recovery through two different business models :
Buy the scam amount at low prices from the consumer and work with law enforcement to recover the amount depending upon the scam. Companies can be built to predict scam recovery scores and based on them one can purchase at the right price
Take a percentage cut on successful scam recovery.
Conclusion
The fight against digital scams in India requires a multi-faceted approach involving regulatory measures, innovative technology solutions, and collaborative efforts between businesses, consumers, and law enforcement agencies. By addressing these challenges head-on, we can protect consumers and curtail the growing threat of online fraud.