Digital economy grows fast leaving consumers exposed to frauds

"Salam, calling from the government office to transfer the state-announced Covid-19 handout to your Bkash account. If you have an account against this number and you are willing to receive the amount, please do not disconnect the call. I am sending the code for technical confirmation and tell me instantly what that is," Mahbub Alam recalls a mid-2021 phone call from a stranger that cost him Tk10,000.

The scammer secured access to Mahbub's mobile wallet and stole the e-money he was planning to send to his family.

The low income private service holder learned about the scam the next week only after receiving no such handout and instead finding his Bkash wallet empty.

Kamrul Islam, Mahbub's roommate in a bachelor apartment in the capital, ordered and received several small-ticket products from a deep discount e-commerce site in 2020 and in the mid-2021 he ordered a motorcycle paying only 65% of its actual price in advance. Islam neither got his product nor the money back, while the site owner is in jail now due to consumer frauds.

None of the two secured a redress and ended up with suggestions for filing criminal cases, which is not a preference of the majority in the country.  

With the rapid rise of digital financial services (DFS) and digital commerce in recent years, more people have fallen into such traps by fraudsters.

Debit-credit card and MFS users' complaints to the Bangladesh Bank got a bigger share of the total - from 5.27% in 2012-13 to 11.2% in 2018-19.

Since the pandemic outbreak, total bank clients' complaints to the Bangladesh Bank, including those regarding general banking, soared to nearly 6,800 in 2021-22, from 3,633 in 2019-20, or by more than 80%.

The rising digital transaction

Continuous market penetration by the industry players helped monthly mobile financial services (MFS) transaction value grow by 102% to nearly Tk65,000 crore in May, 2022 from Tk32,000 crore in December 2018, according to the Bangladesh Bank.

Over the same period, monthly credit card transaction value grew by 127% to Tk2,371 crore, while digital payments to the country's burgeoning e-commerce industry grew by 370% to Tk867 crore.  

The appeal of online shopping helped the annual e-commerce market grow to over Tk22,000 crores in 2021 from around Tk12,000 crores in 2019, according to the E-commerce Association of Bangladesh (e-Cab).

The market size was less than TK1,000 crores in 2017 which grew by 70% from the previous year.

The cost of consumer frauds

Increasing attempts of fraudsters drastically hurt consumers' wallets and confidence that hinders the growth of the digital economy. 

Unlike the matured economies, such as the United States of America where reported cases of consumer frauds cost consumers over $5.8 billion in 2021, a culture of not reporting cases and the absence of any national data on how much the digital-era consumers are losing each year to frauds in Bangladesh, has made any assessment difficult.

In Bangladesh 9.3% MFS users experience frauds, which is over 11% among the e-commerce customers, reveal two different studies by the Policy Research Institute (PRI) and Cyber Crime Awareness (CCA) Foundation, respectively.

CCA Foundation informed 11.48% e-commerce customers in Bangladesh were deceived in 2020, up from 7.44% in 2019.

The victims' number and the sum of consumers' losses are estimated to be much higher in 2021 after more than two dozen Ponzi schemes in disguise of aggressively expanding e-commerce platforms defrauded several hundred thousands of customers who paid them crores in advance, lured by abnormal discounts, getting ultimately.

Think tank PRI, in partnership with the Friedrich Naumann Foundation for Freedom (FNF), earlier this year revealed more than 7,200 people across 45 districts on consumer protection in digital financial services (DFS).

Nearly one in every ten MFS users reportedly suffered frauds, mostly due to compromised PIN, scams involving impersonation, hacked account, stolen data or e-money.

Lack of awareness regarding not responding to any lucrative bluff by scammers, protecting accounts against identity fraud through using registered cellphone numbers, cyber security measures and knowing proper ways to launch complaints after frauds were found to be the main reasons at the victims' end.

However, the ecosystem and infrastructure for proactive consumer protection, the post-fraud redressing mechanism also frustrate a large number of victims.

Around two-thirds of the MFS fraud victims said they got redress in two weeks, while nearly one-third never got their issues resolved.

Victims of consumer fraud who never get their complaints resolved strongly tend to stop using the MFS services, finds the PRI study.

According to the Bangladesh Bank, over 11 crore MFS accounts were opened with various service providers cumulatively, of which 4.5 crore were active in April, 2022.

Based on the PRI study conducted in the August-September period last year, it may be assumed that at least 40 lakh MFS users faced frauds in the country and around 12 lakh victims never got their issue resolved.

Considering the average loss per fraud victims, it is a thousand crore Taka story where the MFS users get no redress.

The over 11 lakh MFS agents across the country are even bigger targets of the scammers as the PRI study among 2000 agents revealed around 13 in every 100 agents experienced frauds and their average loss was nearly Tk19,000 as it ranges from Tk1,000 to Tk70,000.

According to the PRI study, 45% of the agent complaints are never resolved and that means at least a loss of billion Taka.

Bangladesh scores only 32 out of 100 in the Consumer Protection Index produced by The Economist Intelligence Unit, while none of the countries like India, Indonesia, Pakistan, Philippines score below 75.

Around one third of the non-users of digital financial services cited fear of fraud as the main reason behind their reluctance to open an MFS account, regardless how convenient that is.

The industry players and regulators have their set of programs and efforts to address the problems, increase awareness and protect consumers from frauds.

The question is, if those are enough to bring down the cases and amount of consumers' losses significantly.