Fincrime: Ecommerce Do's and Don't

The e-commerce industry in India has witnessed phenomenal growth in the last decade, driven by the rapid adoption of smartphones, increased internet penetration, and favorable government policies. The COVID-19 pandemic has further accelerated the growth of the e-commerce sector as people prefer to shop online to avoid physical contact. This research report aims to provide an overview of the e-commerce industry in India, its current state, and the major reasons behind its popularity.

E-commerce Industry in India: Overview

According to a report by the Indian Brand Equity Foundation (IBEF), the e-commerce market in India was valued at US$ 64 billion in 2020 and is expected to reach US$ 200 billion by 2026, growing at a compound annual growth rate (CAGR) of 30.4%. The report also stated that the number of online shoppers in India is expected to reach 220 million by 2025, up from 160 million in 2020.

The e-commerce industry in India is dominated by three major players: Amazon, Flipkart, and Reliance JioMart. These companies offer a wide range of products, including electronics, fashion, beauty, groceries, and more. Apart from these, there are several niche players that cater to specific categories such as furniture, sports equipment, and toys.

Major Reasons behind the Popularity of E-commerce in India

1. Increasing Internet Penetration: The rapid increase in internet penetration in India has played a crucial role in the growth of the e-commerce industry. According to a report by the Telecom Regulatory Authority of India (TRAI), the number of internet subscribers in India stood at 789.63 million in December 2020, up from 636.73 million in December 2019. This has led to an increase in the number of online shoppers in the country.
2. Convenience: E-commerce offers convenience to consumers as they can shop from the comfort of their homes without having to visit physical stores. This is especially relevant during the COVID-19 pandemic, where people are avoiding crowded places.
3. Wide Range of Products: E-commerce platforms offer a wide range of products, including those that may not be available in physical stores. This allows consumers to access a larger variety of products and make informed choices.
4. Competitive Pricing: E-commerce platforms often offer products at competitive prices, which attract price-sensitive consumers. In addition, they offer discounts and promotions, further incentivizing consumers to shop online.
5. Payment Options: E-commerce platforms offer a variety of payment options, including cash on delivery, credit/debit cards, net banking, and mobile wallets. This allows consumers to choose the payment method that suits them best.
6. Favorable Government Policies: The Indian government has introduced several policies to promote e-commerce, including the Digital India program, which aims to provide internet access to all citizens, and the National Policy on e-commerce, which aims to create a favorable environment for the growth of the e-commerce industry.

Financial Crime in E-com:

E-commerce platforms in India have become an easy target for financial crimes due to the large volume of online transactions and the relative lack of regulatory oversight. As more and more consumers shift to online shopping, the risk of financial crimes in the e-commerce sector has also increased. Some of the reasons why e-commerce is an easy target for financial crime in India are:

1. Lack of Regulatory Oversight: The e-commerce sector in India is largely unregulated, which makes it easier for fraudsters to operate. There is no central regulatory authority that oversees the e-commerce sector, and the existing laws and regulations are fragmented and outdated.
2. High Volume of Transactions: E-commerce platforms in India handle a large volume of transactions every day. This makes it difficult for companies to identify fraudulent transactions and investigate them.
3. Easy Access to Consumer Data: E-commerce companies collect a large amount of consumer data, including personal information, payment details, and transaction history. This data can be easily accessed by fraudsters who can use it for financial crimes such as identity theft, phishing, and online scams.
4. Limited Customer Verification: Many e-commerce companies in India do not have robust customer verification processes in place, which makes it easier for fraudsters to open fake accounts and carry out fraudulent transactions.

Some of the common financial crimes that happen in e-commerce in India are:

1. Online Payment Frauds: Fraudsters use various tactics to trick customers into making payments for goods or services that they do not receive. This includes phishing scams, fake websites, and social engineering attacks.
2. Identity Theft: Fraudsters steal personal information of customers and use it to open fake accounts, make fraudulent purchases, or apply for loans or credit cards.
3. Refund Scams: Fraudsters make false claims of refunds and ask for customers' bank details or OTP to steal money from their accounts.
4. Money Laundering: Criminals use e-commerce platforms to launder money by using fake identities or carrying out fraudulent transactions.

Government Guidelines:

The Government of India has introduced several guidelines and measures to stop financial crimes in the e-commerce industry. These guidelines aim to promote transparency, protect consumer interests, and ensure the integrity of the e-commerce sector. Some of the key government guidelines to stop financial crime in the e-commerce industry are:

1. Prevention of Money Laundering: The Prevention of Money Laundering Act (PMLA) of 2002 requires e-commerce companies to maintain records of all transactions and report suspicious transactions to the Financial Intelligence Unit (FIU). The FIU is responsible for collecting, analyzing, and disseminating information related to suspicious transactions to law enforcement agencies.
2. Consumer Protection: The Consumer Protection Act (CPA) of 2019 provides for the establishment of the Central Consumer Protection Authority (CCPA), which has the power to investigate and take action against e-commerce companies that engage in unfair trade practices, deceptive advertising, or fraud.
3. Data Protection: The Personal Data Protection Bill (PDPB) of 2019, which is currently under consideration by the Indian parliament, aims to regulate the collection, storage, processing, and use of personal data by e-commerce companies. The bill includes provisions for the protection of sensitive personal data, such as financial information.
4. Cybersecurity: The Ministry of Electronics and Information Technology (MeitY) has issued guidelines for the protection of online payment transactions, which require e-commerce companies to adopt robust cybersecurity measures to prevent hacking and data breaches.
5. Digital Payments: The Government of India has launched several initiatives to promote digital payments, such as the Unified Payments Interface (UPI), which allows users to transfer money between bank accounts instantly. These initiatives aim to reduce the use of cash and promote transparency in financial transactions.

How users and platform can protect themselves:

Both users and e-commerce platforms can take steps to protect themselves from financial crime. Here are some measures that users and platforms can take:

For Users:

1. Use Strong Passwords: Users should use strong passwords that are difficult to guess or hack. They should also avoid sharing their passwords with others and change them regularly.
2. Enable Two-Factor Authentication: Two-factor authentication adds an extra layer of security to user accounts by requiring a second form of authentication, such as a one-time password (OTP) or fingerprint.
3. Shop from Trusted Websites: Users should only shop from trusted e-commerce websites that have a good reputation and a proven track record of secure transactions.
4. Verify the Seller: Users should verify the identity of the seller before making a purchase. They can check the seller's ratings and reviews, and verify their contact details.
5. Use Secure Payment Methods: Users should use secure payment methods, such as credit or debit cards, net banking, or mobile wallets, that are encrypted and secure.
6. Keep a Record of Transactions: Users should keep a record of their transactions, including receipts, invoices, and order confirmations. This can help them dispute any fraudulent transactions.

For E-commerce Platforms:

1. Robust Verification Process: E-commerce platforms should have a robust verification process in place to verify the identity of the sellers and buyers.
2. Regular Security Audits: Platforms should conduct regular security audits to identify any vulnerabilities and take appropriate measures to fix them.
3. Fraud Detection Mechanisms: Platforms should have effective fraud detection mechanisms in place to detect and prevent fraudulent transactions.
4. Secure Payment Gateway: E-commerce platforms should use a secure payment gateway that is encrypted and secure to protect customer payment information.
5. Educate Customers: Platforms should educate their customers about safe online shopping practices and provide them with guidelines on how to protect themselves from financial crimes.

In conclusion, both users and e-commerce platforms can take steps to protect themselves from financial crime. By adopting best practices and following guidelines, they can create a safe and secure online shopping environment that benefits everyone involved.