How do online banking scams affect consumer behaviour and financial system stability in developing economies like India?

Online banking has revolutionised financial transactions by bringing about efficiency, accessibility, and convenience never seen before. However, this shift towards digitalisation of finances has caused significant vulnerabilities, especially through online banking scams. This research paper examines the economic implications of such scams, focusing on how frauds affect consumer behaviour and the broader financial system, particularly in developing economies like India. By delving deeper into several scam typologies, such as phishing and vishing, the paper investigates how consumers’ trust in digital banking may be eroded, potentially leading to increased cash dependency. Additionally, the study analyses the financial pressure on banks, regulators and fintech companies as they tend to invest large amounts in fraud detection, cybersecurity infrastructure, and compensation for victims. The paper concludes with policy recommendations aimed at enhancing digital security and restoring public trust in online banking platforms.