How Fino Payments Bank’s Ex-Employees Defrauded Its Clients & Merchants

How Fino Payments Bank’s Ex-Employees Defrauded Its Clients & Merchants

SUMMARY

Some of the company’s staff allegedly floated fictitious schemes to defraud customers and merchants to the tune of INR 35.5 Cr

Fino Payments Bank said it fired the employees in question and sent “complaint closure letters” to all the aggrieved merchants for not being able to substantiate payment claims

The payments bank told Inc42 in a statement that there is no liability on it, adding that customer money is safe and secure

More than a year after it emerged that the employees of Fino Payments Bank had floated fictitious schemes to allegedly defraud customers, the listed company has clarified that the incident had no direct impact on it. 

In an exchange filing on Friday (January 24), the company also shed more light on how the errant and now-terminated employees undertook the alleged fraud.

The payments bank said that it received complaints from some of its clients (in Mumbai) and merchants (in Gujarat and Maharashtra), between May 2023 and June 2024, alleging non-receipt (or repayment) of funds invested in “fictitious” schemes of cash management system and gold loan referral services. 

As per Fino, these schemes were allegedly floated by 19 “identified” employees of the company in their personal capacity. Subsequently in September last year, it appointed KPMG to conduct a detailed investigation into the matter.

“The investigation indicates that the aforementioned complaints were a result of unauthorised actions and  misrepresentation by the alleged staff members. Being so, deviations from standard practices deployed by the Bank attributable to the complainants and/or potential collusion by some complainants cannot be ruled out,” the filing said. 

Acting on the complaints of the fraud, which pertained to the period between December 2021 to April 2023, the company terminated 17 employees while the remaining two handed in their resignation on the receipt of warning letters. Fino said it had also reported the alleged fraud to the Reserve Bank of India (RBI) and other law enforcement agencies.

In addition, the company also informed the exchanges that it filed five police complaints in connection with the matter across Maharashtra. Fino also terminated or is in the process of ending agreements with some of the merchants that breached the payments bank’s prescribed process or for potentially colluding with the identified employees. 

“Reviewed the existing agreements with merchants and do’s and don’ts have been communicated to the merchants regarding sharing of username and password, processes with enhanced controls for tracking of issuance, custody and usage of Bank’s stationary was rolled out,” said the company while outlining the corrective actions taken in the aftermath of the case.

How Big Was The Fraud?

In the filing, Fino said that the KPMG investigation report pegged the amount defrauded from merchants at INR 35.54 Cr. The sum was based on the complaints submitted by the impacted merchants, clients and individuals. 

However, the payments bank said that the merchants were not able to provide evidence to substantiate these claims and as such it has sent “complaint closure letters” to all the aggrieved merchants. 

“… The complainants/ merchants have not provided evidences/ documents substantiating their claims, hence, there is no way to conclude the accuracy of the amount claimed. In view of the same, the bank has sent the complaint closure letters to all the complainants,” it said. 

Fino also said in the filing that the matter has no direct impact on the company, and thereby no ensuing liability. In a statement sent to Inc42, the payments bank said that customer money is safe and secure. 

“… It is pertinent to note that after assessing the matter the bank is of the considered view that it has no direct impact and/or liability as result of these incident(s). As such we would also like to reiterate that none of the complaints pertain to customer accounts and customer money is safe and secure. There is no liability on the Bank as things stand and we are committed to grow as per plans,” Fino said in the statement. 

Founded in 2007, Fino commenced operations in June 2017. Its shares got listed at INR 577 on the BSE on November 12, 2021. 

On the financial front, the payments bank saw its net profit jump 8% to INR 21.15 Cr in the second quarter (Q2) of the fiscal year 2024-25 (FY25) from INR 19.52 Cr in the same quarter last year. 

Meanwhile, total income rose 27% to INR 455.41 Cr during the quarter under review from INR 358.58 Cr in Q2 FY24. 

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