With three outages in just 30 days, India’s pride in the payments space—the now-ubiquitous Unified Payments Interface (UPI)—seems to be in a bit of a spot. Indeed, over the past year, there have been as many as six disruptions, an indication that the system may be stretched. While the National Payments Council of India (NPCI), which runs the system, did eventually fix the glitches, the inconvenience to users looking to transact cannot be brushed aside. The magnitude of the problem is evident from the fact that around 600 million transactions take place via UPI every day. The total number of transactions in March was 18.3 billion, a jump of nearly 14% on year. Even if the disruption lasts just for a few hours, the toll can be significant since the average value of daily transactions is close to Rs 83,000 crore. The fact is that consumers today are relying less on cash and more on mobile payments. A UPI systems failure can cause enormous problems for thousands of small vendors who don’t have point of sales (PoS) machines.
To be sure, NPCI deserves credit for the tremendous job it has done to drive UPI payments, though the credit must be shared with payments apps like PhonePe and GooglePay, which have spent large sums on incentives to push customers to go digital. But NPCI’s response last week that it has conducted a root-cause analysis doesn’t inspire much confidence. By one analysis, it’s a sudden spurt in transactions that are the problem, much like the peak load at a power plant. If this is so, it suggests that NPCI has been caught off-guard. Given the pace at which the number of transactions is growing, it is only to be expected that there will be periods when there is a surge in usage. Even as NPCI re-assesses its technology platform and takes remedial measures, other players in the ecosystem—banks and payments companies—must ensure they are equipped with the infrastructure to handle big volumes so as to be able to settle transactions. Since such UPI outages impact the financial system, the Reserve Bank of India may separately want to investigate the causes for the frequent failures. After all, it is responsible for the stability of the financial system.
In early 2020, the central bank unveiled a draft framework for new umbrella entities (NUE) in what was believed to be an effort to counter the dominance of NPCI. However, five years later, NPCI remains a monopoly with the regulator reportedly having second thoughts especially on the safety and security of data being held by foreign entities. Some say the non-compliance by Mastercard and other foreign card issuers, with regards to localising data, may have had something to do with it. The RBI also probably took cognisance of data breaches at some private sector players—fintechs and e-retailers—concluding it might not be a good idea to allow the private sector to operate digital payments processing platforms. One cannot blame the regulator for exercising caution. At the same time, it is essential to minimise a major concentration risk on UPI as NPCI is the single body that is driving the entire digital payments agenda of the country. The time has perhaps come for setting up another not-for- profit entity on the lines of NPCI to boost competition and innovation.