55% of digital scams linked to UPI, poses threat to India's $1T digital economy

India aims to transform the country into a $1 trillion digital economy by 2026. With the increasing penetration of internet services and the projected growth of digital payments, India has the potential to achieve this milestone. However, the prevalence of UPI-related frauds threatens to undermine the progress made so far.

A recent report revealed that 55% of digital payment frauds are related to the United Payments Interface (UPI), which is a cause for concern. As UPI continues to gain popularity and become the preferred mode of payment, it is crucial to address the rising incidence of fraud and chart a way forward to safeguard the burgeoning digital economy.

The scope of UPI-related fraud

The report highlights that UPI-related fraud accounts for most digital payment frauds reported, with card-related fraud at 18%, internet banking at 12%, and phishing calls at 9%. This revelation is significant considering the exponential growth of UPI transactions in recent years.

For example, UPI accounted for 36% of non-cash retail transactions in FY20, which rose to 44% in FY21 and to 57% in FY22. With internet penetration expected to increase and digital payments projected to grow by 74% from 2022 to 2027, addressing UPI fraud becomes imperative for sustaining the digital economy's growth trajectory.

Preserving trust in the digital economy

While the rise in UPI-related fraud is concerning, it should not deter the progress of India's digital economy. The key lies in adopting a proactive approach to tackle fraud while preserving the trust of consumers and businesses. Several measures can be implemented to control UPI fraud and ensure a safe and secure digital payment ecosystem.

1. Strengthening security measures: To combat UPI fraud effectively, continuous efforts must be made to enhance security measures. This includes implementing multi-factor authentication, robust encryption protocols, and regular security updates to protect against evolving threats.

2. Educating and raising awareness: Promoting awareness among users about common fraud techniques and preventive measures is crucial. Regular campaigns and educational initiatives can empower individuals to identify and report fraudulent activities, reducing their vulnerability to scams.

3. Collaboration between stakeholders: Collaboration between payment service providers, banks, regulators, and law enforcement agencies is essential. Sharing information, best practices, and intelligence can facilitate the swift detection and prevention of UPI fraud. In addition, regular dialogues and partnerships can enable the development of effective fraud detection systems and real-time monitoring mechanisms.

4. Enhanced regulatory framework: The government's proactive initiatives, such as stringent KYC norms and regulations for real-money gaming sectors provide a solid foundation for combating UPI fraud. In addition, continuous evaluation and strengthening of regulatory frameworks can ensure better consumer protection and deter fraudulent activities.

5. Investing in fraud detection and prevention: The report’s positive finding that 60% of organisations surveyed plan to increase their spending on fraud detection and prevention in the coming years is encouraging. This demonstrates a recognition of the gravity of the issue and a commitment to protecting consumers and businesses alike. Increased investment in advanced technologies, AI-driven analytics, and machine learning algorithms can bolster fraud prevention mechanisms and swiftly identify suspicious transactions.

Conclusion

While the rise in UPI-related fraud is a concerning trend, it should not overshadow the tremendous potential of India's digital economy. UPI fraud can be effectively mitigated by implementing comprehensive security measures, educating users, promoting collaboration among stakeholders, and enhancing the regulatory framework. It is crucial to balance convenience and security, ensuring that the digital payment ecosystem remains trustworthy and resilient. With concerted efforts and a collective commitment to combat fraud, India's digital economy can continue to thrive, transforming how transactions are conducted and empowering millions of people.

(Prashant Gupta is the Founder & CEO of Caerus3 Advisors and Think Tank)