Digital payment is any monetary transfer performed electronically instead of being done by using cash or any physical instrument like cheques. Since the formation of the National Payments Corporation of India (“NPCI”) in 2008, a wide scope of usage of digital payments in India occurred. This has been followed by the emergence of payment systems like digital wallets, Unified Payments Interface (“UPI”) and the Bharat Interface, money or BHIM. With the rapid growth of these platforms, ensuring payment compliance and addressing risks like fintech fraud has become critical for both regulators and service providers.

RESERVE BANK OF INDIA AND NATIONAL PAYMENTS CORPORATIONS OF INDIA

 Digital payment systems used in India, including electronic transfer of money, prepaid payment instruments and card payments, are regulated and supervised by the RBI. It provides rules and regulations relating to the security of digital payment systems, mitigating risk, protecting the clients, and others. The NPCI runs and administers systems of payment like UPI, Immediate Payment Service (“IMPS”), and Bharat Bill Payment System (“BBPS”). It manages the development of these systems and how they work, ensures their effectiveness and safety and eliminates all the problems arising during payment processes.

PAYMENT AND SETTLEMENT SYSTEM ACT, 2007

 Any form of digital payment in India, whether it is made via the mobile wallet, prepaid cards, and internet-based portals or any other means, falls into the act of Payment and Settlement Systems, 2007. The act develops a structure of regulation and control of the digital payment service providers, requirements of protecting the clients and resolving disputes among them. It also licenses and regulates payment system operators, and for this, it issues regulations that provide safety and effectiveness of the digital payments business.

MINISTRY OF ELECTRONICS AND INFORMATION TECHNOLOGY

The MeitY is responsible for building the digital infrastructure of the country, consisting of e-governance, digital literacy, as well as digital payments. In India, it also works with the other government regulating agencies and industry stakeholders to facilitate the uptake of digital payment systems.

PRADHAN MANTRI JAN DHAN YOJNA

India has changed significantly over the past few years regarding its legislative framework on digital payments, with the adoption of new payment systems and the implementation of numerous programs to increase the usage of digital payments. The government created numerous projects with the goal of enhancing financial inclusion and encouraging people to use digital payments, such as Digital India and the Pradhan Mantri Jan Dhan Yojana (“PMJDY”).

FINTECH FRAUD

Fintech companies are the ones that deploy modern advanced technology in the delivery of financial services. And when we speak of financial services, there are always fraudsters who have been attracted to the scenario. Simply put, fintech fraud is the malpractice which occurs in financial technology services, including identity theft via digital banking or crypto.

7 PREVALENT KINDS OF FINTECH FRAUD

Fraudsters are interested in money, and thus fintech firms are considered a foremost prey of fraud. What is more, the more sophisticated fintech fraud detection is, the more sophisticated are the methods of fraudsters.

1. Phishing Scams

Phishing is a type of scam whereby scammers impersonate well-established businesses and fool employees/people to reveal their sensitive credentials, such as passwords and credit card details. This kind of attack may occur in various ways, i.e. simulated emails or text messages.

As an example, suppose you get an email or text message purporting to be sent by your bank, instructing you to update some basic account information urgently. This urgency would compel you to follow the link, but again, this is highly likely a fraud attempt.

2. Account Takeover

Account takeovers are a type of attack that occurs in two scenarios: the user has compromised his or her fintech app login credentials and spent money, or made fraudulent charges.

3. Synthetic Identity Theft

The term synthetic implies that the fake ID is not all made up but the techniques are considered as mixed between real information and fake ones. By means of such synthetic identifications, swindlers can borrow money on which they make no intention to repay, e.g.

4. Payment Fraud

The fraudsters steal the details of the credit card and make false purchases or enter the payment systems themselves.

5. Loan Fraud

Individuals lie about their earnings to borrow money through fintech lenders, and the result is that the current loans are excessively high to pay back.

6. Money Laundering

Diving dirty money across fintech systems to smuggle the source of the money.

7. Mobile App Fraud

Malicious apps use fake fintech services to lure the victims to share personal information or authorise illegal transactions.

BEST PRACTICES FOR FINTECH FRAUD PROTECTION

1. Identity Verification

The latter implies confirmation of identities by means of document checking, such as biometrics (such as fingerprints or face recognition) or identity verification companies that compare the information with databases. By so doing, you make sure that only legitimate people will be able to open accounts in your fintech or transact funds.

2. Biometric Authentication

Biometric characteristics unique to people such fingerprints, face scans or voice recognition, cannot be easily imitated, and so it becomes difficult to access accounts or theft of identity by anyone. The law upon which fintech operates has to keep up with the changing dynamics of fraud.

Indeed, biometrics identification and cryptography, to name but a few, are transforming fraud prevention in the financial sector.

3. Behaviour Analytics

When you get a clue of the manner in which users tend to behave or act, then it would be easy to you to know when something does not follow the normal tendency. Behaviour analytics technology and end-to-end fraud prevention systems, such as FOCAL, will alert you when there are unusual spending patterns or when a person logs in at an unusual geographic location, which can be an indicator of fraud action.

4. Fraud Prevention Software AI 

A good fraud prevention solution must contain everything that you require to prevent fraud. It should provide you with 360 defense shield in order to detect instances of fraud and preemptively avoid them. The positive aspect of fraud prevention software solutions is that they process huge volumes of data in real time, learn new information, and adapt the tactics accordingly, as fraudsters structure new techniques.

CONCLUSION

With India moving towards a more online economy, there is a positive outlook for the future of digital payments as the sector is expected to expand extremely fast. New technologies introduced, such as the UPI and e-RUPI, and the growing penetration of smartphones and internet connections, will further boost the growth of digital payments. Adoption of a cashless economy would accelerate in the coming years and would bring more comfort as well as financial inclusion to millions of Indians. The fintech sector is susceptible to fraud and, in comparative terms, more prone to fraud than other sectors due to intensive use of digital transactions. Thus, effective systems and solutions to fintech fraud detection and prevention are requisite in these companies.

FAQs

1. What is payment compliance?

Payment compliance refers to adhering to regulatory standards and guidelines that govern digital transactions. It ensures that financial institutions, fintech companies, and merchants process payments securely, transparently, and in line with laws like the Payment and Settlement Systems Act, 2007.

2. Why is payment compliance important in India?

Payment compliance is crucial in India because of the rapid rise of digital wallets, UPI, and other fintech platforms. It protects customers from fraud, ensures the safety of transactions, and builds trust in the financial ecosystem. Compliance also helps businesses avoid penalties from regulators like the Reserve Bank of India (RBI) and National Payments Corporation of India (NPCI).

3. Which laws regulate payment compliance in India?

Payment compliance is primarily governed by the Payment and Settlement Systems Act, 2007, RBI regulations, and NPCI guidelines. These frameworks cover security standards, dispute resolution, licensing of payment operators, and consumer protection.

4. What are common risks related to payment compliance?

Some major risks include fintech fraud, phishing scams, account takeovers, and payment fraud. Non-compliance increases exposure to money laundering and identity theft, making strong compliance systems essential.

5. How can businesses ensure payment compliance?

Businesses can strengthen payment compliance by:

• Implementing fraud detection tools and AI-based monitoring.
• Using biometric authentication and behavior analytics.
• Training employees on compliance protocols.
• Regularly updating systems to meet RBI and NPCI guidelines.

6. What are the benefits of strong payment compliance?

Robust payment compliance builds customer trust, enhances data security, prevents fraud, and supports financial inclusion. It also positions businesses for long-term growth in India’s rapidly expanding digital economy.

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