Glitches may spoil UPI’s 5-bn monthly payments milestone

Monthly transaction volumes of UPI are likely to cross the 5-billion-mark this month, but have increasingly been facing glitches and failure rates.

According to data provided by the National Payments Corporation of India (NPCI), in February alone, State Bank of India — the biggest in terms of Unified Payments Interface (UPI) volumes — saw 31.68 million transactions failed because of technical reasons, such as unavailability of systems and network issues on bank or NPCI side, over a base of 1.24 billion transactions.

Of the total 4.83 billion transactions on UPI last month, 69.96 million were declined because of issues at the bank’s or NPCI’s end. For SBI, a year ago in February 2021, on a base of 656.92 million transactions, only 7.88 million had declined due to these problems.

Notably, NPCI saw its biggest unscheduled downtime this January, when the UPI service was down for 187 minutes. The downtime had affected almost all UPI apps, including large players like PhonePe, Google Pay. At the time, multiple hardware failures came together to cause the glitch.

Sources in the banking industry said the UPI system’s current overall capacity is designed to handle loads twice the existing volumes but sudden surges at peak timings may overload a particular bank’s systems, causing outages and low transaction success rates.

“The capacity should ideally be anywhere between 3-5 times of volumes that we witness right now. Building up that capacity requires significant investment in infrastructure,” a senior banking industry official said, adding, “But there is no incentive for banks and even fintech companies to invest into that infrastructure because of a lack of commercial opportunity in UPI arising from zero MDR.”

The government had done away with the merchant discount rate (MDR) on UPI and RuPay transactions from January 2020 to promote digital payments through these modes. However, after an initial support, the digital payments industry has been seeking reinstatment of the MDR regime. MDR is a percentage of transaction made through a digital means, and is paid by the merchant to the bank, card network or the payment gateway. Merchants often pass on the MDR to the end-consumers making the payment.

“There is an immense growth potential in UPI but at the volumes that are being forecast for the near future, it will increasingly become unsustainable for banks and fintechs to operate at zero MDR. It is one of the reasons why stakeholders are shying away from making huge investments in upgrading the infrastructure for the future,” the official cited above said.

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