A. Issue in Brief
- RBI proposed a framework (Feb 2025) to compensate victims of digital payment frauds, especially UPI-related scams, addressing rising consumer vulnerability in India’s fast-growing digital economy.
- Proposal follows surge in complaints: National Cybercrime Reporting Portal recorded ~25 lakh cyber complaints in 2024, many linked to financial fraud.
- RBI aims to shift from purely customer-liability model to a shared-responsibility and faster-redress system.
- Reflects need to sustain trust in India’s Digital Public Infrastructure (UPI, AEPS, cards, wallets).
Relevance
- GS-II (Governance)
- Consumer protection
- Role of RBI as regulator
- Ombudsman and grievance redressal
- GS-III (Economy & Internal Security)
- Digital economy & fintech risks
- Cyber fraud and financial security
B. Static Background
Digital Payments Growth Context
- India is world leader in real-time payments:
- UPI processed 100+ billion transactions in 2023–24 (NPCI data).
- Monthly UPI transactions often exceed ₹15–20 lakh crore.
- Rapid scale has also expanded fraud surface area.
Existing Liability Framework
- RBI’s 2017 circular on “Customer Protection – Limiting Liability”:
- Zero liability if customer reports promptly and no negligence.
- Limited liability if delay or customer fault.
- However, delays in dispute resolution often leave victims uncompensated.
C. Key Dimensions
1) Rising UPI Fraud Trends
UPI fraud data (as per Parliamentary replies):
| Year | Fraud Cases | Amount |
| 2021–22 | ~4.07 lakh | ~₹242 crore |
| 2022–23 | ~7.25 lakh | ~₹573 crore |
| 2023–24 | ~13.42 lakh | ~₹1,087 crore |
| 2024–25 | ~12.64 lakh | ~₹981 crore |
| 2025–26* | ~10.64 lakh | ~₹805 crore |
(*till Dec 2025)
Shows 3–4x rise in cases since 2021–22.
2) RBI Proposed Compensation Structure
- Compensation cap proposed: up to ₹25 thousand per victim (or 85% of actual loss, whichever lower).
- RBI to create a dedicated fund (~20% contribution from banks).
- Banks expected to contribute ~15%+ share, ensuring industry skin-in-the-game.
- Focus on cases involving:
- OTP scams
- Social engineering
- App-based fraud
3) Consumer Protection & Trust
- Digital payments rely on network trust:
- Any fear reduces adoption, especially among elderly and rural users.
- RBI signals shift toward proactive consumer protection, not just reactive grievance handling.
4) Institutional Mechanism
- Integration with:
- NPCI dispute resolution
- Ombudsman framework
- Cybercrime portal coordination
- Faster turnaround expected compared to current bank-led investigations.
D. Critical Analysis
Opportunities
- Strengthens confidence in DPI ecosystem (UPI, Aadhaar, Jan Dhan).
- Encourages reporting rather than silent victimhood.
- Aligns with global best practices:
- UK & EU frameworks ensure faster fraud refunds.
Concerns / Risks
- Moral hazard:
- Users may lower vigilance expecting refunds.
- Fraud ecosystem increasingly sophisticated:
- Deepfakes, spoofed calls, phishing-as-a-service.
- Burden on banks:
- Rising fraud losses could affect profitability.
- Enforcement gap:
- Low conviction rates in cyber fraud cases.
E. Way Forward
- Strengthen real-time fraud detection using AI/ML.
- Nationwide digital literacy campaigns under Digital India.
- Mandatory cooling period for high-risk transactions.
- Stronger KYC norms for mule accounts.
- Faster coordination between banks and law enforcement.
F. Exam Orientation
Prelims Pointers
- UPI = NPCI-run real-time payment system.
- RBI Ombudsman handles digital payment complaints.
- India leads world in real-time digital payments volume.
- Customer liability rules from RBI 2017 circular.
Mains Practice Question (15M)
- “Rapid digitisation of finance must be accompanied by robust consumer protection.”Discuss in context of rising digital payment frauds in India.
