Safety mechanism: Digital payments need speed with security as fraud rises

A decade after its launch, Unified Payments Interface (UPI) has become integral to India’s digital payments ecosystem, combining instant transfers with interoperability to enable seamless transactions across platforms and institutions. With over 450 million users, more than 22 billion monthly transactions, and a peak value nearing ₹29.5 trillion in March this year, it has transformed the way Indians transact. However, while growth is now moderating, fraud risks are rising. The data from the National Cyber Crime Reporting Portal shows reported fraud cases increased from 0.26 million in 2021 to nearly 2.8 million in 2025, with values exceeding ₹22,000 crore annually. Notably, transactions above ₹10,000 account for about 98.5 per cent of the fraud value. In this regard, the recently released discussion paper by the Reserve Bank of India (RBI), titled “Exploring safeguards in digital payments to curb frauds”, has proposed a one-hour delay for high-value transfers, additional authentication by a “trusted person” for vulnerable users like senior citizens for high-value transactions of more than ₹50,000, caps such as ₹25 lakh annual inflows for a low credit turnover account, and also a “whitelisting” mechanism by which payers can authorise certain transactions to payees bypassing the lag.

 

The RBI’s paper correctly identifies that the nature of fraud has changed. Most frauds today are authorised push payments, or APP frauds. Users are tricked into sending money themselves through impersonation, fake calls, or urgent requests. In a real-time system like UPI, once the money is sent, it becomes difficult to recover. This makes prevention more important than cure. The proposed one-hour delay for high-value transfers could create a small window for users to reconsider or cancel a transaction, and for banks to flag a suspicious activity. Experience from countries such as Singapore, the United Kingdom, and Sweden shows that such “cooling-off” periods can reduce fraud without significantly affecting routine payments.

 

However, some structural issues remain. Introducing delays in transactions runs against UPI’s core promise of instant payment. Banks will need to invest in new systems for queuing, alerts, and reversals, raising costs and coordination challenges. Fraudsters may still persuade users to bypass safeguards through whitelisting. “Trusted person” authentication could also delay genuine transactions. Technology will, therefore, be critical in addressing these gaps. Monitoring based on artificial intelligence, better data sharing among banks, and real-time risk scoring can help detect suspicious patterns before transactions are completed. Such tools can ensure that safeguards are targeted rather than their being blanket, preserving efficiency while improving security.

 

The RBI’s recent consumer-centric incentive like the compensation mechanism, which will come into effect in July this year for small-value frauds, will also improve consumer confidence, especially if claims are settled quickly. Ultimately, trust in the system depends not only on prevention but also on fair and timely redress. Nevertheless, clear guardrails can be laid down to protect the interests of users, especially vulnerable sections. However, it would also be important that users are given the choice to opt out of such a mechanism. What is important in this regard is awareness. While the RBI and other agencies have stepped up efforts, the scale and evolving nature of fraud mean that much more sustained and widespread digital literacy initiatives are needed.