Banking frauds and how to protect yourself

Banking frauds and how to protect yourself

January 6, 2014

We all know that fraud, and more so, financial frauds have been in existence for a very long time. Some may be surprised, but it is interesting to note that Kautilya, in his famous treatise Arthashastra, penned down around 300 BC, painted a very graphic detail of what we, in modern times, term as ‘fraud’. Kautilya described forty ways of embezzlement in his book.

Frauds on the rise

Very little has changed over such a long period in the basics of fraud. Complaints of fraud in the banking sector are on the rise; more so, cases of ATM fraud. Fraud can loosely be defined as ‘any behavior by which one person intends to gain a dishonest advantage over another.’ In other words, fraud is an act or omission which is intended to cause wrongful gain to one person and wrongful loss to another, either by way of concealment of facts or otherwise.

As a customer you may be seen as a potential target for fraudulent activities. However, by arming yourself with information and tools you can protect yourself from becoming a victim of fraud.

Do you know the four biggest fraud threats you face?

•    Electronic fraud

•    Identity theft

•    Credit/Debit card fraud

•    Cheque fraud


A skimming machine – also known as card cloning machine – is mostly used to deceive people at ATM counters without giving a hint of suspicion as the machines cannot be detected from outside. The magnetic strip behind an ATM card contains all the information. If the card is entered through the skimming machine, all the information can be copied by the fraudsters to reproduce a duplicate one.  Instead of drawing money, miscreants use this mostly to pay bills of hotels, plane fares and other transactions.  The unmanned ATM counters are mostly targeted to implant these machines. Sometimes customers have been trapped while paying the bills in restaurants and shops with their debit/ATM cards.


Beware of emails and phone calls that request confidential information under false pretences in order to fraudulently obtain credit card numbers, passwords or other personal data. This is called phishing, and many people become victims of this type fraud. The cheaters will send e-mails in the name of the bank which seems to be original and gives lucrative offers and schemes to lure the customers. Then they ask for the PIN number of debit cards or account details in order to avail the new facility. Once provided, the fraudsters make a fake ATM card and withdraw money.

Manipulating keypad

This method of cheating has been used not only in Kolkata but also in other suburban areas and districts.  The unmanned ATM counters where the system is to take the ATM card out after swiping instead of pushing it inside the machine during transaction, are targeted. In general, two people carry out this operation with the aid of a screwdriver and glue.

One pretends to swipe the card to withdraw money, which turns the machine to active mode. Then they apply glue below a button after pressing it down. The next customer is not aware of the fact that the ATM is still in active mode. He swipes the card, but as another card has been swiped while the machine is already in active mode, the screen of the ATM becomes blank and the victim thinks the machine has hung. As he comes out, the fraudster enters once more to bring the button back to its normal position with the help of the screwdriver. The PIN number of victim stills remains in machine’s memory which enables them to withdraw money from the victim’s account.

Be cautious while asking for help

If a person is willing to help you by himself when an ATM machine is not functioning or you yourself ask for help, beware. There may be foul play. If you enter the PIN number in front of the stranger, it can be a huge mistake. The next day when you visit the ATM you may be surprised to see that money has disappeared from your account. These incidents are common in counters where there is more than one machine, as that enables the second person, the fraudster, to be inside at the same time as you, pretending to be using the ATM.

Hoax e-mail/SMS

Cases of circulation of fraudulent e-mails and SMS messages have increased in recent times; these texts/mails claim that the recipient is the winner of a gift/prize. Many a time, gullible people fall prey to such e-mails and pay money in designated accounts, which is then quickly siphoned off through ATMs located in far flung areas of the country. For this purpose, the fraudsters generally use deposit accounts in banks with lax KYC drills or accounts which have remained inoperative for a long period.

Prevention of these threats:

Banks need to constantly monitor the typology of the fraudulent activities in such transactions and regularly review and update the existing security features to prevent easy manipulation by hackers, skimmers, phishers, etc.

•    RBI had advised banks in February 2013 to introduce certain checks and balances like introduction of two-factor authentication in case of ‘card not present’ transactions, converting all magnetic strip-based cards to chip-based cards for better security, issuing debit and credit cards only for domestic usage unless sought specifically by the customer, putting threshold limit on international usage of debit/credit cards, constant review of the pattern of card transactions in coordination with customers, sending SMS alerts in respect of card transactions, etc., to minimise the impact of such attacks on banks as well as customers.

•    RBI has advised banks to introduce preventive measures such as putting a cap on the value/number of beneficiaries, introducing a system of issuing alert on inclusion of additional beneficiary, velocity checks on the number of transactions effected per day/ per beneficiary, considering introduction of digital signature for large-value payments, capturing internet protocol check as an additional validation check for any transaction, etc.

•    Banks need to caution their customers to guard against temptations for easy money and  also ensure that deposit accounts maintained with them are fully KYC compliant (KYC is the acronym for ‘Know your Customer’, a term used for customer identification process).

•    People need to be a little more alert while visiting an ATM counter. It is better to visit an ATM counter guarded by security persons.

•    It is advised not to take help from any strangers in an ATM counter.

•    The ‘Cancel’ button in an ATM must also be pressed after the transaction is over.

•    Credit card users should have the option of punching in the personal identification number (PIN) as an additional security measure while making payments at merchant outlets. This is in addition to signing the charge slip on completion of a purchase. This is part of a move by the RBI to secure card payment transactions.

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Comments (4)
Kamalika Reply
January 06, 2014
Last year two from a gang were caught by the detective dept of Kolkata Police in Gaya who used the adhesive method to siphon off money from ATMs. The gang operated all over India and was known as the 'adhesive gang'.
Saugata Reply
January 06, 2014
Got to know a lot about about banking frauds from this article.
Saikat Reply
January 06, 2014
We should visit ATM counters which have security guards
Mrinmoy Reply
January 06, 2014
So many tricks they use to fool the customers! We need to be careful!!
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