Ernst & Young probes cashback fraud at Paytm Mall

BENGALURU: Paytm Mall, which houses the online marketplace business of Paytm Group, has roped in consulting and audit major Ernst & Young (EY) to investigate a cashback fraud involving its staff who created a fake list of vendors, orders and customers to siphon off funds.


Two people aware of the development said some Paytm Mall staff, largely junior to the mid-level, colluded with third-party vendors, created fake orders, typically small-sized, involving a certain set of vendors and customer profiles, pilfering cashback offers. The staff received kickbacks for their assistance, said the people cited above.

When contacted by TOI, Paytm Mall, which is backed by Chinese e-commerce giant Alibaba and Japanese investment firm SoftBank, said it’s working with EY “to build a technology-driven fraud prevention system”. An EY India spokesperson did not respond to TOI’s e-mail query till the time of going to press.

“Apart from the administration, finance and other support functions, the company also has a business operations team which works closely with partnered merchants to plan and execute cashback offers & promotions, leaving scope for collusion. The EY partnership will also undertake audit & fraud prevention using both human and artificial intelligence,” a Paytm Mall spokesperson said, while declining to comment on the size or scope of the investigation.

“These orders were of small sizes to make sure it doesn’t catch the eye of the management for the longest possible time. There was a circle of orders, vendors, and consumer profiles that were essentially circling back to each other many times. Even after losing some money for cancelling orders, the cashback in volumes made significant gains,” a person mentioned above said. This, according to him, would not have been possible without the assistance from vendors who would have to technically process the orders on Paytm Mall.

This pattern was first found in the annual audit of Paytm Mall’s finances in the wake of steep losses the business had reported, which led to the fraud prevention audit by EY India. For the year ending March 2018, Paytm Mall reported close to Rs 1,800 crore in losses. To fight Amazon and Walmart-owned Flipkart, Paytm was aggressively offering cashbacks on each order to lure consumers to shop on its platform. EY conducting an audit of Paytm Mall was first reported by media platform Entrackr. The details of the nature of the cashback scam are being reported for the first time. While an initial estimate of loss for Paytm Mall could not be ascertained independently, a management consultant said such audits are typically mandated when the potential of losses would be at least $2 million. “The platform continues to de-list fraud merchants and take strict action wherever needed,” Paytm said.

According to industry sources, these methods have emerged in internet companies over the past few years as people try to circumvent policies to make a quick buck. For instance, companies in the cab-hailing space across India and Southeast Asia found practices where drivers would typically ask the rider to finish a trip mid-way and book again. This was being done to increase the number of rides to hit targets which would result in additional incentives.

All said, the latest developments come at a time Paytm Mall is under severe pressure from its bigger rivals and undergoing a change in strategy completely to online-to-offline (O2O) as parent firm Paytm is working on raising new capital for both the payments and e-commerce entity.

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