Digital fraud cases see alarming growth: report

KARACHI: Digital fraud is on the rise in Pakistan in tandem with the country’s increased use of digital financial services, according to a report released on Friday.

Karandaaz, in its study titled ‘Unmasking Digital Threats’, said that the changing dynamics of Pakistan’s economy, significantly shaped by digital technology and fintech startups, have resulted in considerable growth and transformation in the financial sector.

The Covid-19 pandemic further accelerated the reliance on digital channels, leading to an upsurge in digital transactions.

“Development in instant payment systems has played a pivotal role in this transformation by significantly increasing the accessibility and convenience of financial services,” the report said.

“However, this rapid expansion of digital financial services is accompanied by a corresponding rise in digital fraud, particularly socially engineered frauds. These frauds exploit human psychology rather than technological vulnerabilities, posing a major challenge to creating a secure digital payments environment,” it added.

The report identified key fraud types, such as phishing, brand impersonation, and fake advertisements on social media, which fraudsters use to gain customer details. As per cases identified by CTM360, phishing attacks have increased 10 times from 2019 to 2023, while other fraudulent activities such as malware logs and payment card leaks have surged eightfold from 2019 to 2023, it said. The research analysis further highlighted significant trends in digital fraud, with phishing and UAN spoofing being the most common methods used to obtain customer data, subsequently leading to account takeovers.

Fraudsters primarily utilise phone calls and social media to exploit victims, often targeting mobile money transfer services and retail platforms. Despite the prevalence of these frauds, many victims do not report incidents, and refunds are rarely provided by financial institutions due to unclear accountability mechanisms.

According to the report, the occurrence of brand impersonation fraud cases significantly increased from 400 cases in 2019 to 2,000-3,000 in 2023, growing as high as 62.50 percent in 2020 and 100 per cent in 2023. In the electronic money institutions (EMIs) sector, from no reported cases in 2019, the sector witnessed a surge in incidences to reach an estimated 50-100 cases in 2023, a staggering growth of 400 per cent in 2020.