This topic covers the practical steps and systems that banks use to prevent, detect, and respond to online frauds that target both the bank and its customers.
Common Types of Cyber Frauds Targeting Customers
Understanding the methods used by fraudsters is the first step in managing the risk.
1. Phishing
A fraudulent attempt, usually made through email, to trick you into revealing your sensitive financial information.
- How it works: You receive an email that looks like it’s from your bank, asking you to “verify your account” or “update your KYC” by clicking a link. The link takes you to a fake website that looks identical to your bank’s real website. When you enter your username and password on the fake site, the fraudster steals them.
- Example: An email with the subject “Your bank account has been blocked!” asks you to click a link to unblock it.
2. Vishing
This is “voice phishing,” where fraudsters use phone calls to trick you.
- How it works: A fraudster calls you, pretending to be a bank employee or an RBI official. They might create a sense of panic (e.g., “your card is blocked”) and ask you to share your card details, CVV, or OTP to “fix” the problem.
- Example: “Hello, I am calling from the credit card department. We have detected a suspicious transaction. To cancel it, please share the OTP you just received.”
3. Smishing
This is “SMS phishing,” which uses text messages to commit fraud.
- How it works: You receive an SMS with a link, often containing an urgent message.
- Example: “Congratulations! You have won a lottery of ₹5 lakhs. Click this link to claim your prize.” The link may install malware on your phone or lead to a fraudulent website.
4. Social Engineering
This is the art of manipulating people into giving up confidential information. Phishing, vishing, and smishing are all types of social engineering. Fraudsters exploit human psychology (like greed, fear, and urgency) rather than technology.
Fraud Risk Management: The Bank’s Operational Measures
Banks have a multi-layered strategy to manage these risks.
1. Prevention
- Customer Education and Awareness: This is the most important preventive measure. Banks regularly send emails, SMS alerts, and run campaigns to educate customers about common frauds and teach them never to share their PIN, password, or OTP.
- Robust Authentication: Implementing Two-Factor Authentication (2FA) (e.g., password + OTP) for all online transactions is mandatory.
2. Detection
- Real-Time Transaction Monitoring: Banks use sophisticated software that analyses customer transaction patterns in real-time. The system can flag transactions that are unusual for a particular customer.
- Example: A customer who has never made an international transaction suddenly makes a large payment on a foreign website. The system can automatically block this transaction and alert the customer.
3. Response
- Incident Response Plan: Banks must have a clear plan to follow when a fraud is reported. This includes immediately blocking the compromised card or account.
- 24×7 Helpline: Providing a dedicated, round-the-clock helpline for customers to report lost cards or fraudulent transactions.
- Security Operations Center (SOC): Many banks have a dedicated SOC, which is a centralised unit with a team of security experts who monitor the bank’s systems 24×7 to detect and respond to security threats.
Summary
Fraud Risk Management is a critical operational function for banks in the digital age. The main threat comes from social engineering attacks like phishing (email), vishing (voice), and smishing (SMS), which target customers. Banks combat this through a three-pronged strategy: Prevention (through customer education and 2FA), Detection (using real-time transaction monitoring systems), and Response (with a clear incident plan and 24×7 helplines). The ultimate goal is to create a secure banking environment and protect customers’ money from fraudsters.
Quick Revision Points
- Social Engineering: Manipulating people to get confidential info.
- Phishing: Fraud via Email.
- Vishing: Fraud via Voice Call.
- Smishing: Fraud via SMS.
- Golden Rule: NEVER share your PIN, Password, or OTP with anyone.
- Bank’s Main Prevention Tool: Customer Education.
- Bank’s Main Detection Tool: Real-time Transaction Monitoring.
- 2FA (Two-Factor Authentication): A mandatory security layer (e.g., Password + OTP).
- SOC (Security Operations Center): The bank’s 24×7 cybersecurity monitoring team.