Introduction
Since 2016, the UPI system has been implemented in India, and it is undeniable that it has transformed how India transacts. However, the rapid adoption of the system has also led to an increase in fraud attempts. Today, scammers exploit vulnerabilities in human behaviour and technology by using elaborate techniques to commit UPI-related fraud.
This blog is about the mechanisms behind UPI frauds, the consequences they cause, and the measures financial institutions can take to prevent them.
What are UPI Frauds?
UPI (Unified Payments Interface) systems carry out UPI payment frauds, primarily aiming to steal money from users’ bank accounts. It is a deceptive activity performed by fraudsters by manipulating digital payment processes either with the user’s data or emotions or by breaching layers of security within the payment ecosystem.
Occasionally, UPI frauds are not solely the result of a technical fault on the platform. In reality, it is caused mainly by how these deceivers trick the victims into getting the money or revealing sensitive information, approving fraudulent transactions, or downloading malicious apps. The reason is that these UPI scams are not a one-time anomaly; it’s a deeply ingrained problem.
Despite UPI’s design aiming to provide instant convenience, fraudsters have industrialised it, acting swiftly to avoid risky decisions and forcing financial institutions to remain vigilant against these frauds.
How UPI Frauds Work
Initiating Contact with Victims
Fraudsters employ various UPI scams, such as phishing, impersonation, fake job offers, cashback scams, screen-sharing apps, QR code frauds, and fake customer care numbers to reach out to potential victims. Often, scammers initiate this via phone calls, SMS messages, emails, or social media to manipulate users’ behaviours and build initial trust.
Gaining Access to Sensitive Information
Once they establish contact, they proceed to obtain data from the victim. They trick users into providing card details, UPI ID and PIN, or activating SIM card re-registration under false pretences. Users may also unknowingly download screen-sharing apps or click on malicious links from unverified sources, exposing sensitive credentials to attackers.
Redirecting Payments or Fraudulent Transactions
Sometimes, scammers launch unauthorised UPI transactions after they gain access to a victim’s account or device. In most cases, they exploit the “Request Money” feature by sending UPI-collected requests disguised as refunds, rewards, or emergency payments.
Some even include fraudulent UPI handles in chat or invoice messages to deceive users into transferring money directly to them. Many users are unaware of the redirection until the transaction is complete, as it occurs quickly.
Stealing and Disappearing with the Money
This is the execution phase. The scammers fraudulently obtain the user’s authorisation and transfer money from the victim’s account in real time. Once the transaction is successful, the scammers will swiftly transfer the stolen funds into a mule account, digital wallet, or even route them through crypto-based channels, allowing them to disappear before the authorities find trace of it.
Real Life Example
Data released by the Ministry of Finance show that UPI scams have caused Rs. 485 crores in losses across 6.32 lakh cases in 2024-2025. This surge in fraud highlights the growing necessity of online banking fraud prevention in India’s digital payment landscape.
Often, users are unaware that they are the target of UPI transaction frauds. This is because the fraud does not occur due to a tracking issue; rather, the system operates based on the customer’s location by verifying their Virtual Payment Address (VPA) or UPI ID.
To strengthen UPI fraud prevention, the Reserve Bank of India (RBI) has implemented several safeguards, such as two-factor authentication, device binding, and AI-driven fraud monitoring.
Furthermore, the Ministry of Home Affairs launched the National Cybercrime Portal and Helpline in 1930 for easy reporting of financial fraud, which was also accepted via bank websites and branches.
How Financial Institutions Can Prevent UPI Fraud
UPI fraud prevention is not just about staying ahead with new strategies. It’s about creating a preventative, intelligent defence system that channels legitimate transactions and impedes malicious attempts in real time, thereby preserving trust, minimising risks, and protecting every digital interaction.
If you’re done playing with fraudsters in this swift digital race, here’s how banks and other financial institutions can outsmart UPI scams without affecting real transactions.
Strengthen Onboarding and KYC
Everything starts from here. The onboarding process is not solely dependent on documentation; it serves as your primary safeguard. Move beyond paperwork with intelligent profiling, Aadhaar-based eKYC, and behavioural insights to block fraud before it enters your system.
Furthermore, banks can mandate 2-factor authentication (2FA) across UPI payments to maintain a strict validation. These effective measures can reduce or eliminate synthetic identities and mule accounts, ensuring only verified users enter the UPI systems.
Advanced Transaction Monitoring
Artificial intelligence (AI) and machine learning (ML) models, which can assign risk scores using real-time analytics and behavioural pattern tracking, can quickly analyse transaction patterns and flag anomalies. Banks can foster cybersecurity measures, such as multi-factor authentication, encryption, and granular security, to protect customer data.
Adaptive Authentication
This approach, also known as risk-based authentication, adapts its security checks in real time by looking at things such as user behaviour and location. It adds an extra layer of security when something unusual happens. The reason scammers can quickly break UPI security posture is due to the static and traditional methods.
Transaction Limits and Controls
A simple and effective protocol for controlling UPI fraud involves setting limits on daily transactions based on user tiering, usage history, and time of day. This helps mitigate financial losses without negatively impacting the reliable user experience in the UPI app.
Reporting Suspicious Activities
Simplifying the reporting process might make users and banks act more quickly. With intuitive, real-time interfaces, users are able to spot fraud as it occurs and click on transactions as they happen, which means quicker investigations, less loss, and greater trust in digital payments.
Public Awareness Campaigns
Fraud hides in ignorance. Banks can consistently implement multilingual awareness campaigns about UPI scams, such as phishing, QR scams, and fake app links, and offer banking advice to keep users alert. These ads campaigns raise awareness among users and help them act quickly to avoid or report scams, which secures their funds.
Real-Life Example:
The National Payments Corporation of India (NPCI) is piloting a “federated model” with select banks to combat UPI fraud more effectively. This model combines banks’ internal customer risk scores based on demographics like age and occupation with NPCI’s own transaction and device profiling scores. By merging these insights, online banking fraud detection becomes more accurate and reduces false positives. NPCI is also providing AI/ML-driven fraud scores to banks at no cost, helping them block suspicious transactions in real time.
UPI frauds are evolving faster than traditional defences.
BANKiQ IFRM offers real-time, AI-driven fraud prevention to detect and stop threats before they cause damage.
BANKiQ: Safeguarding UPI Payments & Simplifying Compliance
BANKiQ is a cognitive AI-ML-enabled Fraud Risk Management (FRM) solution provider that helps banks and other financial institutions address various aspects of financial crimes, including UPI scams. It helps find fraud in the UPI by using real-time monitoring of transactions and smart analysis of user behaviour.
Key capabilities of BANKiQ PULSE are:
- Onboarding risk scoring
- Transaction risk scoring
- Advanced behavioural profiling and analytics
- Automated regulatory reporting – FRM and STR
- Zero-code fraud rules builder
- Integrated alert and case management
- Regulatory compliance engine
BANKiQ FRM prevents UPI frauds, protects your customers, and equips your institution today to stay ahead of evolving threats on a platform built for speed, scale, and security.
Final Note
Every second, a new UPI scam is underway. The UPI fraud isn’t random; it’s a patterned and scalable threat exploiting gaps in identity, authentication, and transaction flows. While regulatory safeguards and awareness campaigns form the backbone of fraud prevention, real change begins with smarter systems and sharper vigilance.
Solutions like BANKiQ offer banks a powerful ally to combat fraud with real-time intelligence, compliance-ready reporting, and adaptive defences at each stage of the transaction lifecycle.
Fraud doesn’t wait. Why should your Banks?
Connect with experts at BANKiQ to upgrade your fraud defence today
