Regulating Digital Banking: Legal Strategies for Risk Management and Consumer Protection in India

The rapid growth of digital banking in India driven by innovations such as Unified Payments Interface
(UPI), mobile wallets, and AI-enabled credit scoring has transformed financial services delivery while
introducing unprecedented regulatory and operational challenges. Although the Reserve Bank of India
(RBI) and allied regulatory bodies have implemented frameworks for digital payments, cyber security, and
consumer protection, the pace of technological advancement often outstrips legal adaptation. This paper
examines the evolving legal strategies for risk management and consumer protection in India’s digital
banking ecosystem, with a focus on compliance, fraud prevention, and dispute resolution.
The study begins by analysing the current regulatory architecture, including the Banking Regulation
Act, 1949, Payment and Settlement Systems Act, 2007, and guidelines under the RBI’s Master Directions
on Digital Payment Security Controls (2021). It critically evaluates the efficacy of these measures in
addressing cyber fraud, phishing, identity theft, and algorithmic bias in credit scoring. By reviewing recent
judicial pronouncements, such as Reserve Bank of India v. Jayantilal N. Mistry (2015), and RBI’s
enforcement actions against non-compliant payment service providers, the paper identifies regulatory
strengths and enforcement gaps.