Sources said that while earlier there were “click farms” that used to generate accounts for “fake likes” or “fake reviews” in social media, there is now software to take advantage of pricing arbitrage opportunities by using mass-generated prepaid accounts or digital wallets. Fintechs enable retailers/distributors/business correspondents to issue bank prepaid cards in a straight-through manner.
An example of an arbitrage opportunity is when some payment company offers fixed fees to an issuer in a transaction but there is no lower limit on payments. For instance on donations, some payment-acquiring companies (those that collect the payment) pay the issuing bank a flat fee of around Rs 15 and not a percentage of the transaction value. At the same time, there is no lower limit on the value of a transaction. This enables the issuer to get flat fees on every transaction even when the payment is as low as one rupee.
Unlike social media accounts, becoming a user of financial services requires customers to fulfil KYC (know-your-customer) norms. Here the leeway to allow issuance of multiple SIM cards to an Aadhaar number is seen to be helping.
According to fintech sources, retailers are able to get Aadhaar card holders to front for transactions. Each Aadhaar card is used to obtain multiple SIM cards and each SIM is used to open several prepaid accounts from different banks. Each prepaid instrument is then used to do many transactions. Given the volume involved, the transactions are undertaken using software (bots). However, the software can be used only on sites without captcha code verification.
The acquiring payment company is not always complicit as it ends up being the entity that pays for the transaction. In some cases, where the volume is very high, they do not realise that the system is being abused as overall the acquiring company still makes money by recovering a percentage of the amount it collects. However, in some cases, acquiring companies ignore these transactions as it helps to generate volumes.
One private bank is understood to be doing a review of its prepaid issuance through partners. Payments companies are also reviewing the fee structure, particularly those involving fixed charges for low-value transactions.