India's payment system has transformed the nature of transactions and convenience of cashless transactions in real-time. Such technologies as UPI, wallets, NEFT, RTGS, and Aadhaar payments played a major role in the formation of the revolution together with governmental policies like Digital India and Jan Dhan Yojana. However, this whirlwind ride came with ill-faring issues such as cyber-attack, cyber frauds, regulators' complexity, and sensitization of users. This study elaborates on India's digital payments shifting from cash to AI-driven security systems. It provides an in-depth overview of major security risks like phishing attacks, identity theft, card duplication, and UPI fake transactions, and regulation issues that affect financial security. Comparative viewpoints with global security practices also underscore the importance of AIdriven fraud identification, blockchain, and robust regulatory systems. The study also examines emerging trends like Central Bank Digital Currency (CBDC), deeplearning-powered anti-fraud, and quantum encryption that hold the potential to speed up security, efficiency, and trust in digital payment transactions. Lastly, this paper submits strategic suggestions for enhancing India's digital payment ecosystem with a priority on cuttingedge AI-based security, enhanced cybersecurity laws, and enhanced public campaign awareness to prevent fraud threats and provide a safe, resilient, and future-ready financial system