We need a national survey to track financial grievances

B realized he had been set up for a scam. He said the security code was ‘420’. X said it seemed incorrect. B responded that ‘420’ was the correct description of what X was up to (Section 420 of the Indian Penal Code deals with cheating and dishonesty). X hurled abuses at B before hanging up. Thankfully, B did not lose any money and had the last laugh. But my friend who considers himself to be a tech-savvy financially aware person came very close to being scammed. What happened to B is probably happening to thousands of people across the country every day. Yet, the true extent of financial fraud remains unknown because of the lack of accurate data.

Although financial firms and regulators collect data on complaints from customers, the unreported complaints do not enter their databases. Most customers don’t think it worth their while to report frauds to the police or to financial regulators. Even when it comes to grievances against their own banks or financial apps, most customers chose to stay silent rather than appeal to the customer grievance cell or the regulatory ombudsman. In B’s case for instance, he did not feel that registering a complaint would help nab the scammer.

An online poll by Microsoft and YouGov in 2021 found that across major markets, Indians were more likely to fall victim to tech support scams. These are scams in which a scammer claims to offer a technical support service to rip off customers. Another online poll by LocalCircles in 2022 found that 42% of the respondents had experienced some form of financial fraud over the past three years; and 74% of the respondents who experienced such fraud had failed to get their money back.

These figures are at stark variance with crime data reported in the National Crime Records Bureau (NCRB) and regulatory data reported by financial regulators such as the Reserve Bank of India (RBI). The official record suggests that only a minuscule minority of Indians are affected by financial crimes.

There is a similar variance when it comes to customer grievance data as well. For every complaint on banking and payments that makes it to the regulatory system, there are 60 grievances that do not get voiced, a 2022 research paper by Vimal Balasubramaniam, Renuka Sane, and Shristi Sharma said. For insurance products, the ratio is 80 grievances for every official complaint, their research suggests.

The researchers used a telephone survey in the national capital region (NCR) to record actual instances of customer grievances and compared the survey data against the data collected by the ombudsman of regulatory bodies such as RBI and the Insurance Regulatory and Development Authority of India (IRDAI). Banking and payment grievances were mostly about transaction issues, while insurance grievances were mostly about mis-selling. People with lower education or wealth levels were less likely to voice their complaints, the researchers found.

While these studies are helpful to gauge the possible extent of underestimation in official data, they do not provide nationally representative figures on the true extent of financial crimes or the true incidence of financial grievances in the country. Online polls leave out a vast section of the country’s population. Telephone surveys tend to have better coverage compared to online polls, but still could miss certain demographic groups. Even when telephone numbers are dialled at random, respondents’ decisions on whether to respond to the survey or not might not entirely be random.

To ascertain the true extent of financial misdemeanours and outright frauds, Indian policymakers need to invest in a nationally representative consumer experience survey. A large-scale household survey can tell us how different demographic groups access varied financial instruments, the hurdles they face, and their awareness of grievance redressal mechanisms. It can pinpoint groups that are most vulnerable to online frauds or manipulation. Studies in other countries suggest that those new to online apps and the aged are especially vulnerable to frauds and mis-selling. But authoritative data on such issues is lacking in India.

In the immediate aftermath of India’s independence, RBI had taken the lead in conducting surveys on the financial behaviour of rural Indians because of the lack of data on rural finances. As the National Sample Survey Organization (NSSO) took over such surveys, RBI’s survey capabilities atrophied. As an earlier column had pointed out, RBI’s household survey on inflation expectations is neither nationally representative nor credible (‘Bad data is undermining RBI’s fight against inflation’, 22 March 2022). RBI and other financial regulators need to work with survey experts to design a survey that tracks the pain points of the average financial consumer.

Technology has transformed the world of finance over the past few years. While it has opened many new possibilities, it has also created new risks. Regulators need to understand the extent and nature of these risks carefully before they can take actions to counter these risks.

Pramit Bhattacharya is a Chennai-based journalist. His Twitter handle is pramit_b