INTERNET BANKING: TRANSACTION FRAUDS IN ONLINE SHOPPING (ACT TO STOP IT !) MUST KNOW

Competition and the constant changes in technology and lifestyles have changed the face of banking. Nowadays, banks are seeking alternative ways to provide and differentiate amongst their varied services. Customers, both corporate as well as retail, are no longer willing to queue in banks, or wait on the phone, for the most basic of services. They demand and expect to be able to transact their financial dealings where and when they wish to. With the number of computers increasing every year, the electronic delivery of banking services is becoming the ideal way for banks to meet their clients’ expectations. Technology continues to make online banking easier for the average consumer. Banks are using a variety of names for online banking services, such as PC banking, home banking, electronic banking or Internet banking. Regardless of the given name, these systems certainly offer specific advantages over the traditional banking method. The applicability of various existing laws and banking practices to e-banking is not tested and is still in the process of evolving, both in India and abroad. With rapid changes in technology and innovation in the field of e-banking, there is a need for constant review of different laws relating to banking and commerce. This paper throws light on the evolution of various online shopping techniques and the frauds involved in it. This paper also discusses the legal issues related to prevention of abuse of internet banking frauds in online shopping transactions. Remedial measures to curb this practice also form an integral part of this paper.

LEGAL ISSUES INVOLVED:

The legal framework for banking in India is provided by a set of enactments, viz., the Banking Regulations Act, 1949 , the Reserve Bank of India Act, 1934 , and the Foreign Exchange Management Act, 1999 . Broadly, no entity can function as a bank in India without obtaining a license from Reserve Bank of India under Banking Regulations Act, 1949 . Different types of activities which a bank may undertake and other prudential requirements are provided under this Act. Accepting of deposit from public by a non-bank attracts regulatory provisions under Reserve Bank of India Act 1934. Besides these, banking activity is also influenced by various enactments governing trade and commerce, such as, Indian Contract Act, 1872, the Negotiable Instruments Act, 1881, Indian Evidence Act, 1872, etc.

Internet banking is an extension of the traditional banking, which uses Internet both as a medium for receiving instructions from the customers and also delivering banking services. Hence, conceptually, various provisions of law, which are applicable to traditional banking activities, are also applicable to Internet banking. However, use of electronic medium in general and Internet in particular in banking transactions, has put to question the legality of certain types of transactions in the context of existing statute. The validity of electronic messages / documents, authentication, validity of contracts entered into electronically, non-repudiation etc are some of the important legal questions having a bearing on electronic commerce and Internet banking. It has also raised the issue of ability of banks to comply with legal requirements / practices like secrecy of customers account, privacy, consumer protection etc. given the vulnerability of data/ information passing through Internet. There is also the question of adequacy of law to deal with situations which are technology driven like denial of service / data corruption because of technological failure, infrastructure failure, hacking, etc. Cross border transactions carried through Internet pose the issue of jurisdiction and conflict of laws of different nations.

This dichotomy between integration of trade and finance over the globe through e-commerce and divergence of national laws is perceived as a major obstacle for ecommerce / e-banking and has set in motion the process of harmonization and standardization of laws relating to money, banking and financial services. A major initiative in this direction is the United Nations Commission on International Trade Law (UNCITRAL)’s Model law , which was adopted by the General Assembly of United Nations and has been recommended to the member nations for consideration while revising / adopting their laws of electronic trade.

The government of India has enacted The Information Technology Act, 2000 , in order ‘to provide legal recognition for transactions carried out by means of electronic data interchange and other means of electronic communication, commonly referred to as ‘electronic commerce’…The Act, which has also drawn upon the Model Law, came into force with effect from October 17, 2000. The Act has also amended certain provisions of the Indian Penal Code, the Indian Evidence Act, 1872, The Bankers Book of Evidence Act, 1891 and Reserve Bank of India Act 1934 in order to facilitate ecommerce in India. However, this Act will not apply to:-

1. A negotiable instrument as defined in Section 13 of the Negotiable Instruments Act, 1881;
2.  Power-of-attorney as defined in Section 1A of the Power-of-Attorney Act, 1882;
3. Trust as defined in Section 3 of the Indian Trusts Act, 1882;
4. A will as defined in clause (h) of Section 2 of the Indian Succession Act, 1925;
5. Any contract for the sale or conveyance of immovable property or any interest in such property;
6. Any such class of documents or transactions as may be notified by the Central Government in the official Gazette.

According to Google, India has more than 100 million Internet users, out of which around half opt for online purchases and the number is growing every year. With such a large market size, companies, right from retail shops to consumer goods, are entering the Web space to attract potential customers. According to the Associated Chambers of Commerce and Industry of India (ASSOCHAM), the size of the online retail industry is expected to touch Rs7,000 crore by 2015, up from Rs.2,000 crore now, at an annual growth rate of 35 per cent.

Although there are a number of benefits of online shopping, its disadvantages cannot be overseen or neglected. The disadvantages of online shopping include no accessibility to hand on inspection i.e. the potential buyer is not able to feel the product before purchasing it. For example, it is extremely challenging to carry on garment shopping online because the future buyer cannot actually see and touch the item and make a justified decision. One of the most serious disadvantages of online shopping is its privacy concern. When we shop online, we waive certain privacy rights to the online retailer. Online stores can easily track our purchases over a period of time in order to give us suggestions of products we may like to buy.

It can be seen that E-bank frauds involve, as already seen manipulations, alterations, obliterations, hiding, eliminations and corruption of electronic documents, messages, e-mails, SMSs, digital data, digital signatures, command menu and software used in E-banking. Money-laundering also involves e-frauds. They include illegal and unauthorized use of the equipment, protocol and software (algorithms) used in E-banking. They are usually committed for wrongful gains.

E-banking fraud spectrum is vast: loss-wise, ingenuity-wise, format-wise and novelty-wise. They are new species. The public, in general, are ignorant. The high technology is daunting. The fear of the new and the unknown—the very names of e-banking, M-banking, Net-banking create an aura of awe among most of us.
It is believed that even with the best of laws, with efficient investigating agencies and full national and international co-operation, the successful investigation and prosecution of E-bank frauds will remain difficult, costly and time consuming. The emphasis, therefore, has to be on their prevention rather than on detection and investigation. Philosophically prevention of E-banking frauds is real homework. Pursuit of the E-banking fraudster, on the other hand, is an unending race in the cyber space against time, against the unknown criminal, against the intangible data in all its varied forms and processes, (input, output, throughput). Prevention, therefore, should be easier, less expensive and more beneficial. This is the current thinking of the concerned. A lot of inputs are, therefore, being inducted into the system and the electronic banking is being made safer and more secure increasingly, everyday. Better modes of encryption and decryption and induction of PIN, PIC, Nonces, Digital Signatures, wrapping & and enveloping, etc. are leading the bandwagon to keep the fraudster at bay.

Courtesy : Madhvi chopra

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