What are the risks associated with accepting fake UPI payments
-by Jaya Pathak
Indian businesses have embraced UPI with remarkable speed. The Reserve Bank has noted that nearly 85% of the country’s digital payments now flow through UPI, covering everything from café bills and cab fares to B2B invoices. For small merchants, freelancers and even mid‑sized firms, “scan and pay” has become second nature. Yet the same convenience that makes UPI attractive has opened new avenues for fraud, particularly in the form of fake or spoofed payments at the point of sale.
Many owners sense the problem when they hear stories from peers, but underestimate how quickly a single lapse can show up in cash flow, accounts or even legal disputes. The risks here are not abstract. They range from immediate financial loss to reputational damage, compliance headaches and a steady erosion of trust in digital payments if left unaddressed.
What fake UPI payments typically play out?
Fake UPI incidents usually exploit one simple fact: most small businesses still rely on visual confirmation rather than system records. In many cases, the fraudster will stand at the counter, key in a transaction on their phone, and then flash a screenshot that looks like a successful payment—sometimes an old confirmation, sometimes an edited image, occasionally a mock‑up from a third‑party app. If the merchant is busy, or does not check their bank‑side notification or UPI merchant app, the customer walks away with goods or services that were never actually paid for.
There are subtler variants. Some fraudsters send a UPI “collect” request and persuade the merchant to authorise it under the impression that they are confirming a payment, when in reality they have just approved a debit from their own account. Others tamper with QRs—placing a sticker over the real code or circulating altered images online—so that funds go to a mule account instead of the business. In all these cases, the core risk is the same: the merchant relies on what they see on a customer’s screen, or on an unverified QR, rather than on the credit actually hitting their own account.
Direct financial and operational risks
The most obvious risk is revenue loss.Plenty of fake payments in a month can wipe out the profit on the genuine transactions in case of the business which are cash based or have low margin. Because UPI transactions are, by design, instant and final once correctly authorised, there is usually no built‑in “chargeback” route for the merchant to reverse such losses.
Operationally, fake payments also complicate reconciliation. When end‑of‑day or end‑week tallies do not match stock movement or invoices issued, staff must spend valuable time combing through bank statements, app logs and CCTV, often without a clear trail if the fraud was based on a screenshot rather than a real transaction. For a business that runs lean on manpower, that reconciliation burden is not trivial; it delays closing of books, tax filings and management reporting.
Reputational and relationship damage
An often‑overlooked dimension of fake UPI incidents is the strain they place on relationships with genuine customers. Once a business has been “burned” by a forged screenshot, staff often react by becoming far more suspicious of all digital payments: insisting on extra checks, delaying service while they verify credits, or even refusing UPI entirely for certain ticket sizes.
In competitive segments—QSR outlets, pharmacies, boutique stores—such friction can nudge patrons toward rivals who seem more confident or efficient in their digital processes.There is also a broader reputational risk if fake payments become part of a public dispute. Stories about “UPI scams” travel fast on local WhatsApp groups and social media pages. Even when the business is the victim, potential customers may simply remember that “there was some issue with payments there” and choose to avoid the perceived hassle. For brands that have invested heavily in a modern, digital‑friendly image, that erosion of trust is costly.
Compliance and legal exposure
UPI operation is held within our structured regulatory environment and it is governed by the NPCI and the Reserve Bank of India. Plenty of fake payments are typically initiated by customers rather than merchants. A repeated pattern of such incidents can attract scrutiny from banks or payment partners if it indicates wider weakness in the process. For example, if a merchant routinely disputes UPI transactions after service delivery, partner institutions can classify that business or merchants as high risk. In serious situations, the ongoing irregularities might even prompt stricter due diligence checks or even suspension or termination of the account of merchant.
Strategic risks for small businesses
For small and micro enterprises, the frequent incident or fake UPI payments can even obstruct their shift toward digital and formal financial systems. A consistent digital payment record has been noted by policymakers more oftenly of its support MSMEs in obtaining institutional credit and integrating more deeply into the formal economy. If merchants respond to fraud scares by retreating to cash, they may protect themselves in the short run from one type of risk while exposing themselves to others: cash‑handling losses, theft, weaker documentation and reduced eligibility for schemes that depend on visible digital turnover.
There is also a subtler strategic risk: letting fear of fraud delay investment in more robust digital practices. Industry handbooks and advisory reports show that many payment‑savvy small businesses now use a combination of UPI soundboxes, dedicated merchant apps and real‑time dashboards to verify receipts as they happen, rather than relying solely on SMS alerts or trusting customers’ screens. Firms that cling to ad‑hoc, manual checks, or that do not train staff properly, may find themselves falling behind peers in both efficiency and customer perception.
The business case for stronger controls
To be fair, no control environment can entirely eliminate fraud risk. But the incremental cost of basic safeguards is often much lower than the losses they help avoid. For UPI, this usually means a few practical steps: ensuring that staff are trained never to accept screenshots as proof of payment; making it standard practice to check for confirmations in the business’s own bank app, UPI merchant app or soundbox before handing over goods; regularly reconciling QR codes in use with those issued by the bank or payment service provider; and keeping contact details up to date so that SMS or push alerts are not missed.
Conclusion
Viewed through a business‑magazine lens, the core message is straightforward. UPI has lowered barriers to digital acceptance dramatically and opened growth opportunities for even the smallest enterprises. Fake payments exploit gaps in behaviour and process, not weaknesses in the underlying rail. The real risk, therefore, is not that UPI is unsafe, but that businesses treat it casually—relying on trust where verification is possible, or assuming that “small amounts” do not merit proper checks.Over time, such habits can erode margins, create operational noise and chip away at the very confidence in digital payments that has driven India’s transformation so far.
