Why Account Takeover Fraud Persists in India Despite Aadhaar

Why Account Takeover Fraud in India Persists Despite Aadhaar

India’s Aadhaar system is one of the most ambitious digital identity programs in the world, designed to bring formal financial access to millions. By linking biometric credentials—such as fingerprints and iris scans—to a unique identifier, Aadhaar has significantly streamlined the KYC process for opening bank accounts and accessing services. Yet, account takeover fraud in India is accelerating.

According to the Reserve Bank of India, digital payment frauds accounted for over ₹1,457 crore in reported losses in FY2023, with account takeover and unauthorized access among the fastest-growing categories. A report from Experian revealed a 200% surge in mobile banking fraud over the past two years—largely tied to compromised OTPs and SIM swap attacks. Fintech platforms, UPI apps, and neobanks are especially vulnerable.

The Aadhaar Paradox: Secure Enrollment, Insecure Access

While Aadhaar offers strong identity proofing during onboarding, it doesn’t secure identity throughout the customer lifecycle. That’s the root of the problem.

Once an account is opened, user authentication often relies on weak mechanisms – primarily OTP over SMS. Fraudsters don’t need to hack Aadhaar itself. They simply target the weakest link in the chain: how identity is verified during logins, password resets, and high-risk transactions.

How Fraudsters Bypass OTP Authentication in India

Fraudsters use a familiar playbook: SIM swaps, phishing, remote access malware, credential stuffing, help desk impersonation, and insider manipulation. Each tactic allows attackers to intercept OTPs or bypass identity checks, without ever compromising Aadhaar itself.

Why OTP and SMS-Based Authentication Fail

While OTPs via SMS feel familiar and frictionless, they are highly insecure. SMS can be intercepted. Users often fall for phishing attempts. And OTPs verify possession of a device, not the identity of the user. That makes OTP-based systems an easy target.

A Path Forward: Biometric Multi-Factor Authentication (MFA)

To curb account takeover fraud in India, organizations must move beyond OTP and adopt biometric MFA, using face, voice, palm, or iris recognition to verify the person, not just the device. Biometric MFA is phishing-resistant, frictionless, and scalable. It strengthens identity assurance without compromising user experience.

It also enables secure access across critical touchpoints: logins, customer support, device registration, and high-risk transactions.

Securing the Identity Lifecycle: From KYC to Recovery

The Aadhaar-based eKYC process already verifies users using biometric data. That same data, if captured and stored securely, can serve downstream authentication needs, including app logins, help desk verification, privileged access controls, and password resets. However, this must be done in a privacy-preserving and regulation-compliant manner.

The Role of Behavioral Biometrics

Behavioral biometrics are often misunderstood. Unlike physical biometrics, they don’t authenticate users but rather detect abnormal patterns, such as strange typing speed or swipe behavior that may signal fraud. When paired with biometric authentication, they can automate fraud detection, reduce false positives, and minimize friction for legitimate users.

Decentralized Biometrics: How Anonybit Closes the Gap

This is where Anonybit comes in. Anonybit provides a decentralized biometric authentication platform that allows enterprises to use biometric data securely across the identity lifecycle without ever storing it in one place.

Biometric data is fragmented, anonymized, and distributed across a multi-party cloud network, eliminating honeypots. No raw biometrics are stored, ensuring compliance with India’s DPDP Act and RBI cybersecurity guidelines. Enterprises can layer biometric MFA into every identity touchpoint, preventing fraud while preserving privacy.

Towards a Safer Digital India

Aadhaar was never meant to be a complete identity solution; it’s a foundation. To truly combat account takeover fraud in India, the country must evolve toward continuous identity assurance using biometric MFA and decentralized infrastructure. The future of identity in India lies in securing every interaction, not just the first one.

Frequently Asked Questions (FAQ)

1. Why is account takeover fraud still rising in India despite widespread Aadhaar adoption?

Aadhaar is primarily used for identity proofing at the time of account opening. However, it does not secure the user throughout their lifecycle. Once the account is opened, weak authentication mechanisms like OTP over SMS are often used, which fraudsters exploit to gain unauthorized access.

2. How do fraudsters bypass OTP-based authentication in India?

Fraudsters commonly use SIM swap attacks, phishing, social engineering, and malware to gain control of a user’s mobile number or device. Once they have access, they intercept OTPs and take over accounts. OTPs verify access to a device, not the identity of the person using it.

3. What are the most common tactics used in account takeover fraud?

SIM swaps, phishing, credential stuffing, help desk impersonation, insider threats, and remote access malware are among the top techniques used by fraudsters.

4. Why is OTP over SMS considered insecure?

SMS is an inherently unsecure channel. OTPs can be intercepted, phished, or forwarded, and they don’t verify the user—just the possession of the device. This makes OTP-based authentication vulnerable to multiple forms of attack.

5. What is biometric multi-factor authentication (MFA)?

Biometric MFA uses a person’s unique physical traits like face, voice, or iris to verify their identity, adding a strong, phishing-resistant factor to authentication. It ensures the person is present, not just the device.

6. How is behavioral biometrics different from biometric authentication?

Behavioral biometrics analyze user patterns, like typing speed or screen swipes to detect anomalies and flag potential fraud. They don’t authenticate identity, but rather assess risk. When combined with biometric authentication, they help prevent false positives and improve fraud detection accuracy.

7. How can Aadhaar biometrics be used securely for ongoing authentication?

Biometric data collected during Aadhaar eKYC can be reused for downstream authentication—such as logins, help desk verification, and high-risk transaction approvals—if stored and processed in a privacy-preserving, compliant way.

8. What makes decentralized biometric authentication more secure?

Decentralized systems like Anonybit never store biometric data in one place. Instead, they split it into anonymized fragments and distribute it across a secure, multi-party cloud environment—eliminating honeypots and reducing breach risk, while enabling strong authentication.

9. How does Anonybit support compliance with India’s DPDP Act and RBI guidelines?

Anonybit ensures biometric data is never stored in a holistic or centralized form, supports user consent and data minimization principles, and enables secure, real-time verification without exposing or transferring sensitive data—meeting key requirements under India’s data privacy and financial regulations.

10. What are best practices for implementing biometric authentication in India?

Use liveness detection to prevent spoofing, cover all identity touchpoints (e.g., onboarding, login, transaction verification, account recovery) with privacy-preserving biometrics, and align with DPDP and RBI security requirements.