Systemic Vulnerabilities in Digital Finance: Assessing Governance and UPI Fraud in Rural India

India's digital financial inclusion drive has brought millions of previously unbanked rural households into the formal payment system through the Unified Payments Interface (UPI). This expansion, however, has outpaced the ethical and governance safeguards required to protect low-literacy users, producing a paradox in which inclusion itself becomes a vector of financial harm. This study examines the structural determinants of digital fraud victimisation among rural UPI users in Uttar Pradesh, India. Primary data were collected from 214 active digital payment users in Lucknow District using a structured Hindi-language instrument, and analysed with IBM SPSS 26 for descriptive statistics and SmartPLS 4 for partial least squares structural equation modelling. Four constructs (digital literacy, scam awareness, formal education, and trust in banking institutions) were tested as predictors of victimisation. Results show that 29.5% of respondents had suffered monetary loss, with UPI phishing accounting for 66.7% of reported incidents. Scam awareness exerted the strongest protective effect, followed by digital literacy and formal education. Critically, trust in banks positively predicted victimisation, evidencing a paradox of trust in which institutional confidence induces a compliance bias that fraudsters exploit. The model explains 53.8% of the variance in victimisation. The paper argues that responsible financial technology governance must shift from adoption metrics toward protection-centred design, encompassing AI-based anomaly detection calibrated to rural transaction behaviour, mandatory plain-language risk disclosure within payment interfaces, and accountability standards that treat fraud exposure as a design failure rather than user error. Fraud vulnerability is thus a governance deficit, not an individual literacy gap.