Merchants utilize Unified Payments Interface (UPI) to make it easier for customers to pay for things online. But this quick growth is not good in terms of security and operations in a big context. This research paper presents the strategic application of Artificial Intelligence (AI) and Machine Learning (ML) as a foundation for enhancing UPI security, educating users on its right use, and streamlining dispute resolution processes to ensure a sustainable and secure advancement of UPI. It analyses the most common technical and non-technical problems that affect both users and merchants. This research reviewed various technical and non-technical challenges, types of frauds, and their impacts that are related to UPI usage in India. It is based on a review of studies published between 2020 and 2025. The findings show that while UPI has revolutionized digital payment during events like demonetization and COVID-19, it still faces many concerns. Users commonly face technical challenges like bank server failures, low internet connectivity, payment failures, app freezing, delayed transaction processing. These issues not only may lead to frustration for users but also lead to confusion during transactions, sometimes even causing double payment or delayed confirmations. Merchants often require real time confirmation for the payment from the customer, so any delay in the confirmation can lead to disputes or denial of service especially if the customer is unable to confirm the payment immediately. The findings suggest that these issues not only involve financial costs but also decrease trust in the ecosystem.