Building trust in the era of digital frauds

The rise of digital payments has transformed the digital economy, unlocking new levels of efficiency, convenience, and seamless experience. According to the Reserve Bank of India’s (RBI) payment system report released in January 2025, UPI transactions surged from 34% of digital payments in 2019 to 83% in 2024, highlighting its transformative impact on the broader payments ecosystem. However, as the affinity for digital transactions soars, so does the sophistication of fraudsters who prey on consumers. The fraud landscape has shifted from individual actors to organized syndicates. While payment transactions in India enjoy unique protection layer requiring two factors of authentication (2FA) for every transaction, fraudsters have been able to work around these through either convincing the customer to transfer money on false pretexts or through injecting malwares in customer’s phones leading to compromise of the 2FA protocols. The surge in such fraud cases undermines the trust between customers, digital platforms and regulators.

Reports indicate that the volume of fraud cases has increased dramatically over the last year (2023-2024), with some estimates suggesting a fourfold rise. According to RBI, there were approximately 1.5 crore fraud incidents reported in the first half of FY25 alone, amounting to a staggering INR 21,367 crore in losses. This alarming trend underscores the urgent need for robust measures, financial literacy, technological prowess to enhance secure experiences and strengthen trust within the digital payment’s ecosystem.

A View into Burgeoning Digital Scams

As the success of digital payments unfolds across India and internationally, it faces a growing challenge: increasingly sophisticated fraud schemes targeting its users using organized setups. With more than 69 crore smartphone users in India growing at more than 3% pa, scamsters target these smart phones to perpetrate frauds. Nearly 15 crore scam calls are attempted in the country daily. These include: online banking frauds, phishing scams, SIM swap fraud, credit/debit card fraud, identity theft, online shopping fraud, investment scams, and malware attacks.
Fraudsters lure customers into fake investment schemes with promises of unusually high returns, often using platforms like Telegram to create a sense of legitimacy. Initially, customers deposit small amounts, which are followed by inflated returns, building trust and leading to larger investments. When customers attempt to withdraw, fake apps impose high fees, resulting in even more significant losses. Digital Arrests”, where fraudsters impersonate law enforcement officials to deceive their victims have become common too and gullible customers have lost crores of their life savings to these scams.

As per Ministry of Finance, UPI fraud cases alone surged by 85% in FY24; the number of incidents rose from 7.25 lakh in FY23 to 13.42 lakh translating to thousands of frauds being reported every day. The financial impact of these UPI frauds escalated to ₹1,087 crore in FY24from ₹573 crore in FY23. But the unreported numbers may be larger as these attempts now touch each one of us almost daily. Cyber frauds now eclipse the value of physical frauds for law enforcement agencies. These figures are not just statistics but a resounding wake-up call to the ecosystem to fortify security measures and enhance consumer protections.

Your Best Weapon Against Fraud? Knowledge and Vigilance
To combat rising fraud, a multi-faceted approach involving government, regulators, and industry players is necessary. The government has initiated educational campaigns to inform consumers about potential scams. Prime Minister Narendra Modi cautioned citizens about the “digital arrest” scam in October 2024. The National Cybercrime Reporting Portal (cybercrime.gov.in) and helpline 1930 enable users to report suspicious activities, while public awareness campaigns via SMS, radio, and advisories educate citizens on protecting themselves from cyber threats.

Additionally, the Department of Telecommunications (DoT) has implemented pre-emptive measures, such as caller tunes that alert users about potential scams. While these messages may initially alarm customers, they play a crucial role in raising awareness and encouraging vigilance against cyber fraud.

Technology At the Heart of It

Building trust in digital payments transcends policy and technology—it’s about placing consumers at the heart of the ecosystem, ensuring a secure and seamless experience at every touchpoint. Financial institutions have implemented multiple advanced security measures to mitigate fraud. These include multi-factor authentication (MFA), which adds an extra layer of security before account access, and device binding, which restricts transactions to pre-registered devices.

The fintech industry is also using cutting-edge AI technologies to detect fraud. Generative AI and Large Language Models (LLMs) are now emerging at the forefront of fraud detection, analyzing user behavior and transaction patterns in real time. Security systems are moving beyond “at the gate” or “at Payment” to a continuous risk evaluation of customer accounts using thousands of risk signals. Traditional machine learning and data analytics complement these technologies, examining vast amounts of behavioral, device, and transactional data to predict potential fraud and recommend preventive actions. Predictive analytics can anticipate future fraud, while visual analytics monitors transactions for anomalies using intuitive dashboards.

While the industry leverages advanced technology to combat fraud, regulatory bodies are simultaneously strengthening the institutional framework to create a more secure digital payment ecosystem. The Reserve Bank of India (RBI) is set to soon mandate Cyber Resilience and Digital Payment Security Controls for non-bank Payment System Operators (PSOs) that includes a slew of security measures to be followed by the industry thereby ensuring a baseline layer of security for customers across players. Additionally, systems like the Central Payment Fraud Information Registry (CPFIR) and MuleHunter AI will support financial institutions in detecting and mitigating mule accounts. These proactive efforts by regulators aim to enhance the security of the digital payments landscape.

Stronger Together for A Safer Ecosystem

The fight against digital fraud isn’t just a technical battle—it’s a collective responsibility. From financial institutions and technology providers to policymakers and everyday users, each of us plays a crucial role in creating a safer digital environment. Together, by combining education, advanced technologies, and strong regulations, we can protect consumers and improve trust in the digital payment ecosystem.

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