Common Types of Digital Payment Frauds in India & How to Prevent

Common Types of Digital Payment Frauds in India & How to Prevent

Discover the most common digital payment frauds in India and how businesses can protect themselves using secure payment infrastructure and compliance tools.

Discover the most common digital payment frauds in India and how businesses can protect themselves using secure payment infrastructure and compliance tools.

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July 9, 2025

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6 MINS READ

Common Types of Digital Payment Frauds in India & How to Prevent

Over the last ten years, India’s digital payments landscape has experienced a remarkable transformation. Thanks to innovations like UPI, net banking, mobile wallets, and contactless payments, handling financial transactions has never been easier. But with this newfound convenience comes a troubling rise in digital payment frauds, which pose significant risks to both consumers and businesses.

The booming fintech scene in India has drawn millions into the digital financial world. By 2023, UPI alone was responsible for over 100 billion transactions each year, showcasing the swift move towards cashless payments. While this surge is a positive sign of progress, it has also opened the door to more fraudulent activities. From phishing scams to identity theft, fraudsters are finding clever ways to take advantage of weaknesses in digital payment systems.

It’s crucial for financial institutions and payment platforms, as well as businesses dealing with high transaction volumes, to grasp the common types of digital payment fraud and put strong safeguards in place. This blog will explore the most common frauds in India’s digital payments ecosystem and provide insights on how businesses can strengthen their payment systems against these threats.

The Rise of Digital Payment Frauds in India

India’s digital economy has skyrocketed, fueled by widespread mobile access, affordable data, and the government’s Digital India initiative. While these advancements have made financial services more accessible, they’ve also created a ripe environment for cybercriminals.

In 2022, the Reserve Bank of India (RBI) reported thousands of fraud complaints related to UPI, IMPS, and card payments. The financial losses are piling up, and consumer trust is hanging in the balance. The situation is worsened by a lack of awareness, poor cybersecurity practices, and a constantly evolving fraud landscape that outstrips regulatory measures and technological advancements.

To keep ahead of these threats, businesses need to understand how these frauds take place.

Common Types of Digital Payment Frauds in India

Phishing and Social Engineering

Phishing scams are designed to trick people into giving up sensitive information like OTPs, card numbers, or login details. These scams usually come through emails, fake websites, or text messages that look like they’re from legitimate banks or payment services.

Social engineering takes phishing a step further by using psychological tricks to make victims feel rushed or scared. Scammers might pose as bank officials or customer support agents, persuading users to hand over their credentials or transfer money.

SIM Swap Fraud

In SIM swap fraud, attackers manage to convince telecom companies to switch a victim’s phone number to a new SIM card. Once they pull this off, the fraudster can access the victim's OTPs and banking messages, which lets them drain accounts or authorize payments.

This type of fraud often targets individuals who might not be aware of such tactics and frequently involves social engineering to collect the personal information needed for the SIM swap.

UPI and QR Code Scams

As UPI becomes more popular, scams that exploit this system are on the rise. Fraudsters share fake QR codes or payment requests to trick users into authorizing transactions. Unlike receiving money, UPI pull requests actually deduct funds as soon as they’re approved. Scammers can easily mislead users into scanning a QR code or accepting a payment request, resulting in an instant loss of money.

Malicious Payment Links

Fraudulent payment links, often sent through SMS or WhatsApp, lead users to fake websites that steal their payment information. These links are designed to look legitimate and are commonly used to deceive unsuspecting users, especially during online shopping or charitable donations.

Account Takeovers (ATO)

In ATO fraud, criminals gain access to user accounts by compromising login details through data breaches, weak passwords, or social engineering tactics. Once they’re in, they can make unauthorized transactions, change passwords, and steal funds.

This poses a significant risk, especially for business accounts that handle large transaction volumes and have minimal oversight on transactions.

Card Skimming and Cloning

Skimming devices that are secretly attached to ATMs or point-of-sale terminals can capture your card details. These stolen details are then used to create cloned cards, leading to fraudulent transactions. While EMV chip cards have helped reduce these incidents, older magnetic strip cards and weak security measures at some merchants still leave us vulnerable.

Friendly Fraud

This kind of fraud happens when a genuine customer makes a purchase but then disputes the charge to get a refund while keeping the product or service. It’s a significant issue, especially for online retailers and subscription services.

Impact of Digital Payment Frauds on Enterprises

Digital payment fraud doesn’t just hit individual users; it has serious implications for businesses too:

  • Financial Losses: Refunds, chargebacks, and stolen funds can take a big bite out of profits.

  • Regulatory Penalties: Failing to comply with data protection laws, like India’s DPDP Act or global standards such as GDPR, can result in hefty fines.

  • Customer Trust: Just one breach or fraud incident can tarnish customer relationships and damage a brand’s reputation.

  • Operational Downtime: Dealing with fraud investigations, chargebacks, and legal issues can drain internal resources.

How Enterprises Can Prevent Digital Payment Frauds

To tackle these risks, businesses should adopt a comprehensive security and compliance strategy that’s woven into their payment systems.

Implement Multi-Factor Authentication (MFA)

By requiring several layers of authentication (like one-time passwords, biometrics, or device recognition), you can create hurdles for fraudsters while keeping the experience smooth for legitimate users.

Monitor Transactions in Real Time

Using AI and machine learning to keep an eye on transaction patterns allows for quick detection of fraud. Unusual payment amounts or rapid-fire transactions can be flagged right away.

Educating Customers and Staff

Fraud awareness campaigns are crucial. Companies need to invest in training programs that help employees recognize warning signs and teach customers how to verify UPI handles, QR codes, and payment links.

Complying with Regulatory Frameworks

It's important to ensure that payment processes follow RBI guidelines, AML/KYC protocols, and data privacy regulations. Real-time reporting and keeping audit trails are essential for demonstrating compliance.

The Role of Castler in Creating Fraud-Free Digital Payments

As payment fraud continues to evolve, businesses require infrastructure that goes beyond just traditional security measures. Castler offers an advanced, compliance-focused payment solution tailored for regulated industries and high-volume transactions.

Castler’s payment infrastructure includes:

  • Real-time fraud detection and alerts through its FEWS (Fraud Early Warning System)

  • Smart pay-ins with unique digital identifiers for precise tracking and reconciliation

  • Escrow-based fund holds and milestone-based disbursements for secure payments

  • Regulatory-compliant API integrations with audit-ready logs

  • Comprehensive visibility and automation for both pay-ins and payouts

By teaming up with Castler, businesses can maintain operational flexibility while ensuring trust in every transaction.

Conclusion

Digital payments are here to stay, and with them come increasingly sophisticated fraud threats. However, with the right strategies, technologies, and partners, companies can effectively manage these risks. Understanding the various types of digital payment fraud is the first step, while implementing secure, compliant, and scalable infrastructure is the next.

Castler empowers businesses to achieve just that. With robust features designed for trust, visibility, and control, Castler’s payment stack facilitates seamless, fraud-resistant transactions across various industries.

Discover Castler's Payment Solutions today and help shape the future of secure, intelligent finance.

Written By

Chhalak Pathak

Marketing Manager

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Copyright @2025 Castler (Ncome Tech Solutions Pvt. Ltd.) All rights reserved | Made in India ðŸ‡®ðŸ‡³

India's Largest Escrow-as-a-Service Platform

Escrow account services are complex but Castler's modular, flexible & full stack solution makes it simple for you.

Castler automates the Escrow account management and improves the user experience for managing payments and settlements. By leveraging technology to streamline these transactions, Castler makes the process more efficient, secure and convenient for its users

India's Leading Escrow Company.

Escrow Banking

Investment Escrow

Marketplace

Lending escrow

Fintech escrow

Mergers & acquisition

Regulator mandated escrow

Profit sharing

Franchisor-Franchisee

Dealer-Distributor

Dispute resolution

Litigation escrow

Liquidation

Copyright @2024 Castler. All rights reserved. Made in India ðŸ‡®ðŸ‡³

India's Largest Escrow-as-a-Service Platform

Escrow account services are complex but Castler's modular, flexible & full stack solution makes it simple for you.

Castler automates the Escrow account management and improves the user experience for managing payments and settlements. By leveraging technology to streamline these transactions, Castler makes the process more efficient, secure and convenient for its users

India's Leading Escrow Company.

Escrow Banking

Investment Escrow

Marketplace

Lending escrow

Fintech escrow

Mergers & acquisition

Regulator mandated escrow

Profit sharing

Franchisor-Franchisee

Dealer-Distributor

Dispute resolution

Litigation escrow

Liquidation

Copyright @2024 Castler. All rights reserved. Made in India ðŸ‡®ðŸ‡³