FRAUD MANAGEMENT: Yes, One Needs a Forum

Fraud management in the telecom sector is becoming increasingly important as frauds are getting smarter and have the means and knowledge to hamper business processes and affect the revenues of telecom service providers. Given this fact, what prevents fraud-management practices from being introduced successfully in India? Fraud-management system vendors and telecom operators now hope to form an association to discuss fraud management and introduce measures to prevent fraud. 

To initiate the process and bring about joint action on several points, VOICE&DATA organized a panel discussion in Mumbai on fraud management. The panelists included top executives from cellular-service providers and fraud-management vendors. They were RL Dubey, principal CM, BSNL Maharashtra, R Ramesh, business head, customer assets management, BPL, Sanjay Joshi, GM, credits and collectors, Idea Cellular. The vendors present were John Murray, director, Light Bridge (Asia Pacific) and Stephen Vaz, country manager, EFTIA, and

Gopinath, HP.

The discussion was followed by a Q&A session for the audience, which was made up of people from both the telecom industry and fraud-management vendor firms. It highlighted the need for operators to become serious in their efforts to contain fraud and to share information on frauds so as to contain revenue losses. Excerpts:

"Revenue losses through fraud ranges from $1 billion to $40 billion dollars today. Fraud in telecom is second only to fraud in banking. It is growing exponentially and is expected to go up to 200 percent."  Stephen Vaz country manager, EFTIA

Fraud-management Insights 



RL Dubey, BSNL Maharashtra:

More than fraud, bad debts play an important role and our bad debts figure is quite high. Of course, in Maharashtra, people have good paying habits than those in Bihar, UP and some other states. There used to be more fraud cases earlier but this has now come down after installation of the new electronic exchanges. People have started using passwords and STD rates itself have come down manifold, from Rs 20 to 4.80 per minute. As a result, STD frauds have also come down. ISD is still a problem area because calls are still quite expensive. To deal with fraud in ISD, BSNL has a policy of auditing subscribers who ask for ISD facility. 

R Ramesh, BPL: Fraud can be looked as comprising two elements–one where you have a revenue loss and one where there is an opportunity to violate legal rules. For instance, there are various advertisements that talk of allowing customers to make calls to the US for just Rs 2.99. These services are provided by people who have purchased bandwidth from some ISP.

Now, I will not call this a fraud since there is no revenue loss for the operators in this. However, at the end of the day it can be looked upon as a market loss. An example to back it up would be the kind of losses happening in the music industry owing to piracy. Though bad debt provisioning is coming down, about 2.5—3 percent frauds happening at the subscription level, is a major area of concern. We have very little control over our subscribers in spite of their document presentation, a case where fixed-line operators have an advantage. We need to identify fraud and watch over subscribers like a hawk since once a fraud is done, we may not be able to recover the money. It hurts most when people committing these frauds also start roaming. This is an important area that needs intense investigation. 

"My perspective is on the actual challenges faced by the industry. This forum offers a good opportunity for us to put together the challenges and find a common solution." Sanjay Joshi GM, credits and collectors, Idea Cellular

Sanjay Joshi, Idea Cellular: My perspective is on the actual challenges faced by the industry. This forum offers a good opportunity for us to put together the challenges faced by the industry and find a common solution. A major shortcoming is that we really cannot identify a bad customer in India as we don’t have any social-security system. The number of bad debts ranges anywhere between 2—6 percent and we as an industry have not been honest or transparent enough to accept these facts. Many frauds have some connection to internal resources. For example, Hutch had 49 cases of internal resources fraud in Delhi. We also have thousands of customers who do not pay one or two bills. This results in outstanding amounts that are very difficult to collect. 

Also, there are internal conflicts within the organization. We try to provide connectivity within two hours because of high competition. Another issue that I find is the lack of transparency in between the sales head and his team members. 

Operators have now started collecting documents after the government introduced the necessary regulations. Today, we collect 95 percent of documents before giving connectivity. This was unimaginable a year ago and was looked as a threat to sales. Customers, especially our younger customers know how to take us for a ride. We have to build processes to check our internal control and external resources. The fraudulent customer knows he can get connectivity from any other operator after committing a fraud. In the future, when technologies are introduced for number portability, such frauds are bound to increase.

You can’t chase every person who commits a fraud. The only way to make a fraud pay is to stop him from subscribing with any other operator.

"ISD is still a problem area because calls are still quite expensive. To deal with fraud in ISD, BSNL has a policy of auditing subscribers who ask for ISD facility." RL Dubey principal CM, BSNL Maharashtra

Stephen Vaz, EFTIA: Revenue losses through fraud ranges from $1 billion to $40 billion dollars today. Fraud in telecom is second only to fraud in banking. It is growing exponentially and is expected to go up to 200 percent. 

Fraud activities keep on increasing all the time with more and more players in the market. Also newer technologies like 3G, GPRS, and VoIP are coming in. The revenue loss in the North American and European markets, which are very mature, is in the tune of 2-5 percent even after having fraud management systems. When new service providers roll out services like VoIP, GPRS and 3G, losses are almost 30-35 percent and can even go to 55 percent. Subscriber fraud where the customer has no intention of paying bills is one of the largest components in fraud and is a very serious offense. As an overseas vendor, we feel that fraud management is something that service providers should look at very seriously.

John Murray, Light Bridge: There are several types of fraud such as process-oriented frauds and malicious frauds. Process frauds could be human errors on the part of customer care where a customer makes calls on a postpaid network thinking it to be a prepaid network and hence, never gets any billing. Now, this is not the customer’s fault but a process fault where the billing is not happening. But rarely do customers call up the operator to verify the problem. Instead, most would enjoy the free services till it is spotted by the service provider. 

Malicious customers have different behavior patterns than normal customers. A fraud management system can keep a check for suspicious behavior patterns, different calling patterns etc. For instance, people who commit fraud tend to jump networks, and some can be caught calling same numbers under different profiles. Similarly, frauds happening through internal resources can be tapped by a vigil on the number of vouchers getting recharged. The other important thing is most operators need to overcome being touchy about sharing blacklists with operators, both in the domestic as well as international market.

"A fraud-management system can actually help you fix operational processes in terms of billing. For it to be completely effective, you should make sure that your people are also trained in finance and in using it." Gopinath HP

Gopinath, HP: An important challenge today is that new services are being offered all the time thanks to technological advancements. People who commit fraud are more creative and innovative than the operator in terms of figuring out how to use these new services. So, we need to share information at a high level to prevent fraud.

Primary Glitches



R Ramesh:

I think frauds are happening in smaller areas too. For instance, there are costs involved in acquiring subscribers who commit fraud. One has to pay the dealer or pay the sale commission etc. This doubles the bad debt and is often overlooked. Next, there are cases where people take prepaid vouchers and then SMS the secret code to their friends and get alternate cards recharged, without the knowledge of the card retailer. Such subscribers then come back and say that the number is already used, backed up by the fact that there are one in a million cases of duplicated printing of voucher numbers.

However, these problems can be resolved with various upcoming technologies like “SIM calling”. 

The other thing is that even relying on a person with credit cards is a big risk. There are cases where the customer builds confidence in the retailer by making three or four genuine transactions through his cards. Later he might call up and say that either his card has expired or he has not been provided a new card and so on. I think the whole game of detecting telecom fraud is getting more and more difficult all the time.

"It is good to see operators coming together on one platform and discussing means to attack the various fraud-related problems that have been haunting the industry." Ibrahim ahmad moderator, panel discussion

Sanjay Joshi: Fraud-management systems typically develop a calling pattern of a customer–things like typical numbers called frequently, the time of calling and so on. We also get a lot of information from the field executives who take care of forms and subscribers. 

However, we are pressured from internal sources if we start rejecting too many customers. This leads to internal conflict with the sales department or us compromising on the issue. On the other hand, having very tough measures will lead to losing good customers. The biggest glitch here is the reluctance amongst the operators in sharing their list of defrauders. And legal means are rarely good enough to get back your money.

John Murray: People who commit fraud are very innovative. So, frauds will keep on happening. The difference will be that fraud management systems will allow you to remove such flaws from the network. There are other examples of fraud too, wherein the casual user commits fraud without knowing it to be a fraud. For example, there was this case in Australia where SMS systems were rebooting every day for an hour and users started sending SMS for free. So system glitches can also enable frauds to be committed.

Stephen Vaz: Every organization looks for market penetration. It is very important to get to the customer as early as possible if you are in a market with many service providers. And when all efforts are put into market penetration and consequently, an increase in the number of subscriptions, the chances for fraud or loss of revenue becomes more.

More and more service providers are now realizing the importance of an assessment and fraud-management system. 

Solutions



R Ramesh:

If we are to look at IT and telecom as two parallel things, most of our IT spends initially were in the areas of network management, network improvement and so on. The second phase went into billing and customer relationship. Most of our IT spends today are going into fraud management. I think it is an evolutionary path and different vendors have stepped in and given the requisite support at different parts. To back it up, we have got various data of various customer bases now for about 6—7 years. 

Sanjay Joshi: There are two basic principles of fraud management. Nothing works in isolation and nothing is permanent. In credit, risk management and fraud control, you need various nets for processes like documentation check, credit verification and daily control. It’s a continuous game between you and those who commit fraud. Whoever crosses all the nets gets away with the money. So having fraud-management systems alone will not do. All operators also need to discuss the features we need. I would advocate one basic feature that fraud-management systems should have features covering control of Indian frauds. Because most of the systems are made abroad, they do not consider Indian situations. For example, most security systems assume the existence of a social security number for identification and we don’t have that yet. 

"Operators need to overcome being touchy about sharing blacklists with operators, both in the domestic as well as the international market." John Murray director, LightBridge (Asia-Pacific)

John Murray: Yes, we need to Indianize fraud-management systems. As far as new defraudment techniques go, we strongly believe in getting relevant updates done constantly. Fraud is a global problem and though frauds in India are certainly different from those in the US or some other market, but there are common problems that happen. For example, a fraud that happens in Brazil may be unique there but there’s a good probability that some software will plug up the hole. However, other markets may not know of this hole and it is a matter of time before a fraud in another country will find that flaw and work on crossing the net there.

RL Dubey: Every operator should now have fraud-management systems because it will allow us to detect frauds quickly. However, the cost of fraud-management systems is also very important. It becomes very difficult for organizations to invest large amounts. The cost is bound to come down with technological advances and this will encourage all operators to have such fraud-management systems. We have at present some mechanisms to analyze data, mechanisms built into the switch itself and monitoring calling patterns. These however, do not give information fast enough. A fraud-management system is an advantage in that sense. However, cost is still an important factor. 

Stephen Vaz: Regarding the comment that fraud-management systems are expensive, I feel when a service provider rolls out his services, the investment made on the network is phenomenally high. When you are putting up a network, you are investing on a large billing system. I think if a service provider looks at fraud-management systems at the initial stage itself, and then scaling up that system over a period of time, the expenditure can be justified. It is important to look at fraud-management systems as tools to control and minimize the loss of revenue. There are around 200 variants available for Fraud management now. 

"Fraud can be looked as comprising two elements–one where you have a revenue loss and one where there is an opportunity to violate legal rules." R Ramesh business head, customer assets management, BPL

Gopinath: A fraud-management system can actually help you fix operational processes in terms of billing. For fraud management to be completely effective, you should make sure that your people are also trained in finance and in using it. The challenge lies in training your people well. You could even have fraud analysts in your team. 

Need for Joint Action



RL Dubey: It will be difficult to recover money from a fraud. Chances are that he will evade our attempts to do so. Besides, hard recovery methods used by credit card providers are not good for a service industry like ours. 

Instead, we have to improve our service conditions such that we don’t provide any service to known frauds. The funny thing here is that we know who the frauds are. Our competitors also know that a particular subscriber has cheated us. But, they still tend to give connectivity to such people. We need to come together and avoid doing this. Even the top management needs to get serious about frauds instead of just being bothered about acquiring customers. 

In India, we have 1.4 crore customers and there is no dearth of customers. Operators need to join hands with each other. BSNL has the database of many frauds and it is time to take joint action as everybody is losing money. We also need to create a forum like the COAI that can negotiate with

TRAI. 

R Ramesh: Fraud management should be a top priority for all of us. As of now, we only share the barest details of fraud activities with our competitors. This attitude needs to change radically.

Sanjay Joshi: The top management also needs to get really serious about fraud management. Telecom operators need to have a good forum similar to Nasscom in IT. The collection sector is one area where we have to join hands. There is no forum where we can currently exchange this kind of information and we as an industry have not taken adequate efforts to analyze problems.