How UIDAI is using AI to tackle payment frauds

In May this year, Airtel Payments Bank collaborated with the National Payments Corporation of India (NPCI) to roll out a facial recognition-based authentication measure for such transactions. The technology has been developed in-house by the UIDAI.

How does the Aadhaar fingerprint technology work?

The technology was rolled out in February this year and uses a combination of both finger minutiae and finger image to check the liveness of the fingerprint captured. The measure was implemented after instances of people creating fake fingerprints using silicone to syphon off money from unsuspecting individuals’ bank accounts were reported. The problem gets compounded on account of the fact that a large part of the AePS user base is in rural areas.

In effect, the AI-based technology is able to identify whether the fingerprint is from a real, or ‘live’ finger, or a cloned one.

Payment frauds on the rise

According to the Home Ministry, in the financial year 2020-21, 2.62 lakhs financial crimes, such as money laundering, bribery, corruption and different kinds of frauds, were reported. The number jumped to 6.94 lakhs in 2022, a report, released by the Standing Committee on Finance — headed by BJP MP Jayant Sinha — said.

Citing data it received from the supervised entities of the Reserve Bank of India (RBI), the committee noted that payment-related frauds are on the rise in India – In FY21, the volume of such frauds was a little over 700,000, which by FY23, increased to close to 20 million.

However, due to limited awareness about cyber frauds, a significant number of people do not report them to authorities, the committee said. According to the information submitted to it by the Indian Cybercrime Coordination Centre (I4C), in the year 2022, out of 6,94,424 complaints related to financial frauds only in 2.6 per cent of cases an FIR was registered.

The details shared by Karad with Parliament revealed that between November 2021 and March 2023, more than 2,000 complaints related to AePS were received by the offices of the RBI’s ombudsman.

Can technology alone solve the fraud problem?

Deploying technological measures to curtail financial frauds has its own limits, though. For instance, they have failed to thwart a number of frauds related to AePS, in which a business correspondent, a key member in the payment supply chain, is the culprit.

A business correspondent (BC) is an informal bank agent equipped with a biometric Point-of-Sale (PoS) machine, which works like a micro ATM. If someone needs Rs 500, they have to give their bank details to the BC along with their Aadhaar-based biometric details and the BC will give them the Rs 500. However, officials aware of the matter said often, BCs misrepresent the amount they have paid an individual and input a higher amount in their system. Unsuspecting individuals, especially in rural areas, do not always have the wherewithal to ask for a receipt that the BC is supposed to generate after each transaction.

There have also been instances of fingerprint cloning, which AI-based technologies — at least in theory — are better equipped to deal with.

Last December, The Indian Express reported that the Crime Branch wing of Haryana Police had raised a red flag on the AePS system, saying that cyber criminals are conducting financial frauds by syphoning off people’s vital data from the system and cloning the fingerprints available on documents on the government website. At the time, the cyber cell under the Crime Branch was investigating over 400 complaints pertaining to cyber frauds that are related to AePS.