Why Is UPI Facing Frequent Disruptions? How Does The Interface Work? Explained

News18

28-04-2025

Last Updated:
A probe done by NPCI, which manages UPI, shows the outages took place due to technical oversight – absence of transaction status check limiter in the system's architecture
The outages in the Unified Payments Interface (UPI) in the months of March and April causing serious disruptions in apps like GPay and PhonePe call for attention to the growing concern over the reliability of the platform.
Three major outages were reported in just three weeks on March 26, April 1 and April 12 have exposed certain vulnerabilities in the system that processes around Rs 25 lakh crore in monthly digital transactions.
An investigation done by the National Payments Corporation of India (NPCI), which manages the UPI, reveals that the outages stemmed from technical oversight — the absence of transaction status check limiter in the system's architecture.
The issue was identified to be caused by the flooding of 'Check transaction API. Further, it was observed that a few PSP Banks were also sending requests for 'Check transactions' ever for older transactions multiple times," stated NPCI.
Let us understand how does UPI work, how NPCI manages transactions and what do the banks have to say about the platform.
How Does UPI Work?
A UPI is a smartphone application that allows users to transfer money between bank accounts. It is a single-window mobile payment system developed by the National Payments Corporation of India (NPCI). It eliminates the need to enter bank details or other sensitive information each time a customer initiates a transaction.
The payment is made in real-time, and is designed to enable peer-to-peer inter-bank transfers through a single two-click factor authentication process. The interface is regulated by the Reserve Bank of India (RBI).
The pilot system was launched in India on April 11, 2016. Banks across the country started to upload their interface in August 2016.
UPI uses existing systems, such as Immediate Payment Service (IMPS) and Aadhaar Enabled Payment System (AEPS), to ensure seamless settlement across accounts. It facilitates push (pay) and pull (receive) transactions and even works for over-the-counter or barcode payments, as well as for multiple recurring payments such as utility bills, school fees, and other subscriptions.
Once a single identifier is established, the system allows mobile payments to be delivered without the use of credit or debit cards, net banking, or any need to enter account details.
Why NPCI Had Several Outages?
Srikanth Lakshmanan, a member of the Cashless Consumer project, quoted by The Hindu, said it is because of the Payment and Settlement Systems Act, 2007, which mandates that organisations involved in clearing transactions in bulk to be majority-owned by public sector banks.
'You don't do a PIN authentication, but other communication still goes through NPCI," Lakshmanan said. 'The NPCI has to say this transaction originated from your device and so on. This is why even though UPI Lite doesn't involve the PIN entry and decryption, it is still routed through NPCI since it's fundamentally an interoperable system. While UPI Lite is light, it still requires NPCI to be in the middle."
How Technical Oversight Caused UPI Outage
The NPCI limits banks to check a transaction's status only three times, with each request requiring a 90-second interval. However, this restriction was implemented by banks themselves rather than through NPCI's infrastructure.
As per a repot by Moneycontrol, banks continued making non-stop transaction success checks that overwhelmed the system beyond its capacity.
The NPCI has advised financial institutions and their partners to strictly adhere to the specified frequency of transactions checks instead of continuously querying the system.
How Banks Have Had Rocky Relations With UPI
Reports suggest that even though the system has revolutionised payments in India, there were over 58 crore transactions worth over Rs 73,000 crore on April 25, and banks were largely unable to collect any significant fees on transactions, even though there are costs attached to each of these.
The RBI estimated that banks incur a cost of Rs 0.80 per transaction, due to SMS notification costs (which telecom operators collect for commercial messages), and the costs incurred in maintaining and updating records of each payment. However, they are not able to charge a Merchant Discount Rate (MDR) for these services, leaving them with few incentives to keep to rigorous uptime standards, as per The Hindu.
The report suggested that system-wide downtimes are far fewer and shorter on commercial card networks like MasterCard and Visa as they have robust monitoring.
The Ministry of Electronics and Information Technology has launched its annual UPI incentive programme for banks, which also has conditions that penalise banks whose performance suffers over the course of year.
How RBI Controls NPCI
The RBI on April 9 permitted NPCI to upwardly revise transaction limits in UPI for person-to-merchant payments (P2M) based on evolving user needs.
'To enable the ecosystem to respond efficiently to new use cases, it is proposed that NPCI, in consultation with banks and other stakeholders of the UPI ecosystem, may announce and revise such limits based on evolving user needs," RBI Governor Sanjay Malhotra said.
Banks shall continue to have the discretion to decide their own internal limits within the limits announced by NPCI, the governor added.
P2P transactions on UPI, however, will continue to be capped at Rs 1 lakh, as hitherto.
Loans against the collateral of gold jewellery and ornaments are extended by regulated entities (REs) for both consumption and income-generation purposes.
Prudential and conduct related regulations for these types of loans have been issued from time to time and they vary for different categories of REs.
'With a view to harmonising such regulations across REs while keeping in view their risk-taking capabilities, and also to address a few concerns that have been observed, it has been decided to issue comprehensive regulations, on prudential norms and conduct related aspects, for such loans," the governor said.
The Reserve Bank has also proposed to make the Regulatory Sandbox (RS) framework 'theme neutral' and 'on tap' to foster continuous innovation and keep pace with the rapidly evolving fintech/regulatory landscape.
(with inputs from PTI)
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tags :
digital payments india News18 Explains Unified Payments Interface (UPI)
Location :
New Delhi, India, India
First Published:
April 28, 2025, 10:02 IST
News explainers Why Is UPI Facing Frequent Disruptions? How Does The Interface Work? Explained