Introduction
For years, when it came to digital payment frauds in India, large banks were the primary targets of financial fraud. Their vast reserves, high transaction volumes, and complex networks made them attractive to fraudsters seeking big paydays. However, in recent times, fraudsters have shifted their focus—small banks and cooperative banks are now in the crosshairs.
But why? What’s driving this change? And most importantly, how can these institutions protect themselves?
The Shift: From Big Banks to Smaller Institutions
Large banks have invested heavily in advanced payment fraud detection systems, AI-driven risk analytics, and multi-layered security frameworks. Regulatory pressure and past high-profile fraud cases have forced them to strengthen their defences, making fraud attempts more difficult.
In contrast, small banks and cooperative banks often operate with:
- Limited cybersecurity infrastructure
- Less sophisticated fraud monitoring tools
- Weaker internal controls and governance
- Fewer resources to invest in advanced fraud prevention
For fraudsters, this means easier targets and lower chances of detection.
Real-Life Cases: A Wake-Up Call for Small Banks
New India Cooperative Bank Fraud (2025)
The bank’s former general manager was arrested for syphoning off ₹122 crore over multiple years, taking advantage of weak internal controls and oversight. The fraud was detected only after significant financial damage was done.
PMC Bank Scam (2019)
One of India’s biggest cooperative bank frauds, where loans were issued fraudulently to a single real estate firm. By the time authorities caught on, ₹6,500 crore in fraudulent loans had been issued, leading to financial collapse and depositor panic.
Rise in UPI and Digital Payment Fraud
As digital transactions surge, smaller banks lack real-time fraud monitoring, making them vulnerable to phishing scams, unauthorised transactions, and fake account takeovers.
How Are Fraudsters Exploiting Small Banks & Cooperatives?
1. Mule Accounts & Money Laundering
- Fraudsters conduct online payment frauds by opening multiple accounts with fake credentials in cooperative banks, which have less stringent KYC checks.
- These accounts are then used to move illicit money across financial networks before detection.
2. Loan Fraud & Insider Threats
- In smaller banks, insiders (bank employees) can be bribed or manipulated into approving fraudulent loans.
- Some fraudsters set up fake businesses to qualify for loans, then disappear before repayment begins.
3. Cyber Fraud & Phishing Attacks
- Many small banks do not have strong multi-factor authentication (MFA) or behavioural monitoring in place.
- Fraudsters hack into accounts, steal credentials, and execute unauthorised transactions.
4. ATM & Card Fraud
- Weak security systems make card cloning, skimming, and fake transactions easier to execute.
The Solution: How Small Banks Can Protect Themselves
Implement Real-Time Fraud Detection Systems
- Investing in AI-driven fraud monitoring tools like BANKiQ solutions that analyse patterns, anomalies, and suspicious transactions in real time. Additionally, by deploying fraud detection in digital payments, financial institutions can operate on a strong footing.
Stronger KYC & Customer Verification
- For effective online transaction fraud prevention, financial institutions should strengthen identity verification processes to detect and block fake accounts and mule operations.
Enhance Cybersecurity Measures
- Use multi-factor authentication (MFA), biometric login, and endpoint security to protect customer data.
Regular Internal Audits & Employee Training
- Conduct frequent fraud risk assessments and educate employees on fraud tactics and early warning signs.
Collaborate with Regulators & Law Enforcement
- Engage with RBI and law enforcement to report fraud cases early and get ahead of emerging fraud trends.
BANKiQ PULSE: A Smarter Way to Fight Digital Payment Frauds
BANKiQ PULSE is a hosted Fraud Risk Management (FRM) solution designed to help small and cooperative banks combat digital payment frauds with real-time transaction monitoring, risk scoring, and automated regulatory reporting.
It identifies fraud at multiple stages—onboarding risk scoring detects high-risk accounts, while transaction risk scoring flags high-risk activities in real time. AI-driven behavioural profiling continuously adapts to new fraud patterns, ensuring proactive fraud prevention.
Suspicious transaction reporting (STR) automates compliance with FIU and Central Bank regulations. By integrating advanced alerts, case management, and regulatory compliance, BANKiQ PULSE enables small banks to mitigate fraud risks, strengthen security, and stay ahead of evolving threats efficiently.
Conclusion: Fraudsters Are Getting Smarter—Are We?
The reality is, fraudsters always follow the path of least resistance. As large banks have strengthened their security, smaller banks and cooperative banks have become the new targets.
But this doesn’t mean they have to be vulnerable. With the right online payment fraud detection tools, strong governance, and proactive risk management, these institutions can fight back and keep their customers’ money safe.
Are small banks prepared for the fraud challenges ahead? Let’s start a conversation.
