Abstract
The proliferation of digital banking, Unified Payments Interface (UPI), mobile wallets and online payment services has transformed financial transactions in India. While these innovations offer speed, convenience and wider access, they have also exposed consumers to rising risks: unauthorized transactions, frauds, service failures, cheque dishonour and delays in grievance-redressal. This paper examines whether the existing laws and regulations in India provide adequate protection to consumers in banking and digital-payment services. It focuses on key statutes , the Consumer Protection Act, 2019, the Negotiable Instruments Act, 1881 as well as relevant guidelines issued by the Reserve Bank of India (RBI) and the Insurance Regulatory and Development Authority (IRDA). Drawing upon case law,[1] recent fraud data and regulatory documents, the study classifies prevalent consumer issues, assesses how regulatory bodies respond, and analyses the magnitude of consumer harm. The findings indicate that while the current legal framework offers several protections (such as restrictions on customer liability for some unauthorised digital transactions, and mandated grievance-redress mechanisms), significant gaps remain: unclear liability in third-party frauds, slow resolution of disputes, low consumer awareness of rights and inconsistent practices among banks and payment-aggregators. The paper finds with recommendations for legal amendments and regulatory upgrades including clearer liability norms, faster complaint-processes, stronger enforcement and better consumer education to strengthen consumer protection in India’s evolving digital-finance era.
Introduction
Over the last few years, India has witnessed a dramatic transformation in the way financial transactions are conducted. The advent of digital banking, the widespread adoption of real-time payment systems such as the Unified Payments Interface (UPI), mobile wallets and other online payment services have ushered in an era of convenience, speed and greater financial inclusion. For instance, in 2024 alone India recorded roughly 208.5 billion digital payment transactions, with UPI accounting for about 83 % of that volume. UPI transaction volumes have surged such as processing over 172 billion transactions in 2024, reflecting around 46 % growth over the previous year. This scale of adoption underscores the rapid digitalisation of the payment’s ecosystem in India and the central role that banking and digital-payment services now play in everyday life.
At the same time, with this rapid growth, significant risks come for the consumers who use banking and digital payment services. Cases of unauthorised transactions, fraud, service lapses, [2]delays in grievance-redressal, and issues such as cheque-dishonour continue to surface. For example, reports show a 72-year-old resident in Pune lost around ₹3.4 lakh to a “KYC update” fraud involving remote access and unauthorised UPI transactions. These developments raise concerns about whether the legal and regulatory framework is sufficiently robust to protect consumers’ rights in this new environment.
Within this context, this research paper undertakes a critical evaluation of the legal and regulatory mechanisms that are in place in India to protect consumers in the realms of banking, digital payments and related services. It focuses on key statutes like the Consumer Protection Act, 2019 and the Negotiable Instruments Act, 1881, as well as relevant guidelines issued by the Reserve Bank of India (RBI) and the Insurance Regulatory and Development Authority of India (IRDA). The assessment employs a doctrinal research method supplemented by case studies and empirical data to classify the common problems faced by consumers, assess how well regulatory bodies respond to them, and analyse the magnitude of consumer harm.
The significance of this study stems from the fact that as digital transactions become the norm rather than the exception, consumers must be protected not only against traditional banking risks (such as cheque-dishonour or bank service deficiency) but also against novel digital risks (such as app-based fraud, phishing, unauthorised UPI mandates and payment-aggregator failures). The paper contends that while the existing framework does provide useful protectionsuch as limitation of liability in certain unauthorised digital transactions and mandated grievance-redress mechanisms, there remain important gaps: ambiguous liability in third-party digital fraud, slow dispute resolution processes, low consumer awareness of rights, and inconsistent practices among banks and other payment service providers.
[1] study on consumer safety in India’s digital-payment ecosystem
Growing risks in digital banking,Legal gaps in digital payments