Financial Fraud Risk Indicator (FRI)

Recently, the Reserve Bank of India’s (RBI) directed all Scheduled Commercial Banks, Small Finance Banks, Payments Banks, and Co-operative Banks to integrate the Financial Fraud Risk Indicator (FRI) developed by the Department of Telecommunications (DoT) into their systems

What is Financial Fraud Risk Indicator (FRI)

The Financial Fraud Risk Indicator (FRI) is a cybersecurity tool developed by the Department of Telecommunications (DoT) to combat the rising tide of cyber fraud in India, particularly in the banking and digital payments sector. The FRI works by classifying mobile numbers into Medium, High, or Very High risk categories, based on various inputs, including reports from the Indian Cyber Crime Coordination Centre (I4C), DoT’s Chakshu platform, and intelligence from banks and financial institutions.

how it helps prevent cyber fraud for consumers:

1. Real-time Fraud Detection

• FRI uses AI and machine learning to detect fraudulent activities in real-time, such as phishing, account takeovers, and payment fraud. By analyzing behavioral patterns and transaction anomalies, it can flag suspicious activities before they escalate.

2. Risk Scoring and Prevention

• Each mobile number gets a risk score (Medium, High, or Very High) based on how it’s been involved in previous fraud activities. Banks can use this scoring system to:

  • Block suspicious transactions before they go through.

  • Issue alerts or warnings to customers about potential fraud.

3. Collaboration between Telecom and Banking

• FRI is designed to be integrated into the workflows of both telecom providers and banks. This collaboration helps create a unified defense system that bridges the telecom and banking sectors, improving the ability to detect and respond to fraud.

4. Mobile Number Revocation List (MNRL)

• The DoT’s Digital Intelligence Unit (DIU) shares a revocation list of mobile numbers that are linked to cybercrimes, are disconnected due to fraudulent activities, or have failed re-verification. This list is regularly updated and shared with banks and other financial institutions to help them identify high-risk numbers.

5. Consumer Protection Measures

• Banks can take preventive measures like:

  • Declining transactions linked to high-risk numbers.

  • Issuing alerts for suspicious activities originating from flagged numbers.

  • Delaying or blocking transactions flagged as high-risk.

6. Fraud Prevention with AI-based Analytics

• Tarun Wig, Co-founder of Innefu Labs, highlights how FRI can enhance fraud detection by using AI-based risk scoring and behavioral analytics. This approach not only identifies fraud but helps banks predict and prevent future fraudulent activities, thus reducing financial losses and enhancing customer trust.

7. Enhanced Customer Trust

• UPI continues to dominate India’s payment landscape, integrating FRI into banking platforms increases transaction integrity and helps protect consumers from scams and fraud.

Key Features of FRI:

1. Risk-Based Classification:

   • FRI classifies mobile numbers based on their risk of being involved in financial fraud, assigning them to one of three categories: Medium, High, or Very High risk.

   • This classification helps financial institutions, particularly banks, Non-Banking Financial Companies (NBFCs), and UPI service providers, to focus their efforts on high-risk numbers and take immediate protective actions.

2. Input Sources:

   • The risk assessment is based on inputs from various stakeholders, including:

     • The Indian Cyber Crime Coordination Centre (I4C).

     • National Cybercrime Reporting Portal (NCRP).

     • DoT’s Chakshu platform.

     • Intelligence from banks and financial institutions.

3. Mobile Number Revocation List (MNRL):

   • The Digital Intelligence Unit (DIU) regularly updates and shares a Mobile Number Revocation List (MNRL) with stakeholders. This list details mobile numbers that have been disconnected due to connections with cybercrime, failed re-verification, or misuse.

   • Many of these numbers are involved in financial frauds, and their revocation helps banks and payment service providers avoid potential losses.

4. Real-Time Preventive Actions:

   • Banks can use the FRI system to take real-time actions such as:

     • Declining suspicious transactions.

     • Issuing alerts or warnings to customers about potential fraud.

     • Delaying transactions that are flagged as high-risk.

5. Collaborative Approach:

   • FRI allows for swift, targeted, and collaborative action against suspected fraud across both telecom and financial domains. It enables banks, financial institutions, and UPI providers to share vital information and act collectively against fraud.

6. Proven Success:

   • Leading institutions such as PhonePe, Punjab National Bank, HDFC Bank, ICICI Bank, Paytm, and India Post Payments Bank are already using FRI to enhance their fraud prevention systems and protect consumers.

Significance of the FRI System:

• Enhanced Security: By integrating FRI, banks and financial institutions can take proactive measures to protect consumers from fraud before it happens. This boosts security across India's growing digital payments landscape.

  Efficient Fraud Detection: FRI’s ability to analyze and flag suspicious mobile numbers in real time means that fraudulent activities can be detected and halted faster, preventing potential financial losses for consumers.

  Consumer Confidence: As UPI and digital banking continue to grow in India, consumers will have more trust in these systems, knowing that their transactions are protected by advanced fraud detection technologies like FRI.

  Collaboration between Telecom and Banking: FRI bridges the gap between the telecom and banking sectors, enabling both industries to work together seamlessly to combat financial fraud. This collaborative approach has the potential to serve as a model for other countries.

  Government Support: With the RBI's mandate for banks to integrate FRI, the system is becoming a standardized tool for fraud prevention, helping to align efforts across the financial sector.

Conclusion:

The integration of FRI into the banking sector is a landmark development for fraud prevention in India. By classifying mobile numbers according to their fraud risk and enabling real-time action, the system provides a comprehensive defense against digital fraud. Its collaborative nature across telecom and financial services, along with its ability to act swiftly, makes it a critical tool in securing India's digital financial ecosystem. The adoption by leading financial institutions is a strong endorsement of its effectiveness, and its broader implementation promises to significantly enhance consumer protection and trust in digital payments.