NPCI developing 'federated model' to counter fraud transactions using UPI

CHENNAI: The National Payments Corporation of India (NPCI) is piloting a 'federated model' in collaboration with banks to eliminate frauds using Unified Payments Interface (UPI) transactions. India's umbrella organisation for operating retail payments and settlement systems is also leveraging on Artificial Intelligence (AI) and Machine Learning (ML) tools to detect suspicious transactions through UPI. NPCI chief risk officer Viswanath Krishnamurthy told reporters here on Wednesday that NPCI and banks could share only customer scores between the two agencies. “Banks have their own model, which is based on customer demographics including customers age and occupation. Our model is based on transaction profiling and device profiling. Can both these scores be married together and then that becomes a good success. So, if they can give the feedback to us saying that our model is also giving a high score. That is what we are calling it as federated," he said. The NPCI is piloting this project with 3-4 public and private banks. "The false positive ratio will come down significantly. For example, if you are identifying one fraud, in the approach this false positive will improve. The bank will be able to take much better calls on which customer and transaction looks more fraudulent," he added. In March (2025), 18.3 billion transactions were recorded through UPI with a value of Rs 24 lakh crore.It is about 35% growth in YoY volume and 25% in terms of value YoY.Fraud cases are in the ratio of one per 6.5 lakh transactions. Further, NPCI said, 85% of frauds using UPI transactions relate to investment scams, 10%-12% pertains to fear and the rest happens over ignorance. Noting that the fraud levels were minuscule in UPI transactions when compared with credit cards, he said, AI/ML tools are being leveraged to detect frauds. "Now for every transaction banks are getting code, which we are giving this free of cost to all the banks. Banks can take a decision to decline some of those transactions based on their score, which they can do at their end or they can inform NPCI and we will decline on their behalf," Krishnamurthy added.