Experts: UPI Outages Highlights Need for Innovative Solutions

The Unified Payments Interface (UPI) facilitates over 7000 transactions in a second. And more than four lakh transactions in a minute.

If the network is down, it can impact four lakh people. That means in 10 minutes, it can affect 40 lakh transitions.

On April 12, UPI faced the largest outage in 18 days, during the afternoon. On March 26, UPI was unavailable for 30 minutes in the evening.

There are close to 40 crore unique UPI users in India and around 83% of all the digital transactions happen via the real-time payment system.

UPI has remained an inter-personal money transferring method. About 65% of all UPI transactions are merchant-driven transactions.

“There is a large segment of the population in the country that does not carry wallets or cash anymore. So if UPI does not work, it could bring the commerce in the country to a standstill,” said an executive, who heads the digital operations of a large bank.

Indian commerce runs on UPI

UPI has become the leading primary payment means for the country’s commerce. Country’s small and large retailers depend on the ubiquitous QR codes to receive customer payments.

“That is where the unavailability of NPCI is unprecedented. Bank server issues are common. Many consumers in the country have multiple bank accounts and if one bank’s UPI service is unavailable, they could use another UPI address linked to another bank account. Bank issues can be treated as isolated incidents and not necessarily in NPCI’s hands. But when the NPCI server is unavailable, it becomes a major inconvenience with no transactions happening in the ecosystem,” said the banker.

Previously, NPCI set a target of one billion transactions a day almost four years ago, giving it enough time for it to prepare for at least 500 million transactions in a day.

Interestingly, the daily volume or value of UPI during the days when the outages happened, was not so big for the platform to be down because of a potential overload.

“It is so difficult to pinpoint the actual issue but we already know UPI switches across banks are overwhelmed and if there are some unusual spikes due to some events, it flares up. The IPL spikes of small merchant transactions and already overworked servers of SBI and HDFC have a cascading effect on the entire UPI infrastructure,” said Deepak Abbot, co-founder of fintech startup IndiaGold. Abbot previously worked at Paytm.

About 86% of the UPI transactions are less than ₹500. The core banking solutions (CBS) of the banks are not meant to facilitate 500 million microtransactions in a day.

Solutions?

Unless and until NPCI doesn't disclose the reasons behind the recent outages, the general public will never know whether the organisations and banks are taking appropriate measures to prevent a similar situation.

“NPCI came up with the UPI Lite solution to address the increasing load of small ticket transactions in the ecosystem. However, with only around 25-30 lakh transactions in a day, it hardly had an impact on the overall load. But we don’t know how the NPCI outage happened. Was it an overload? That is a completely different issue that we need to address,” said a former banker who headed UPI for a private sector bank.

According to the founder of a large UPI app, despite promoting the Lite solution on the homepage, customers seem to prefer the direct bank account solution. “This is why the wallets did not take off in India,” said Srinath Sridharan, Corporate Advisor and Policy Researcher.

He believes that it might be significant to visit the New Umbrella Entity (NUE) framework.

“While the Reserve Bank of India (RBI) had previously set aside the NUE initiative due to the absence of truly innovative proposals, the vision behind NUE extended beyond innovation. It was about building alternatives, ensuring redundancy, and safeguarding the future of our financial ecosystem,” Sridharan said.

If any alternative systems ride on the existing banking infrastructure, it could still be at the mercy of the current limitations of the ecosystem.

“A simple software issue could result in such a large outage. We need alternate CBS for banks or better fallback servers and systems for the existing framework to deliver better results. This does not necessarily happen because of lack of investment. NPCI has enough money to invest in UPI,” the UPI app founder quoted above added.

The extension of the deadline for Third-Party App Providers (TPAPs) like Google Pay and PhonePe to comply with the 30 percent transaction volume cap has now been pushed to December 31, 2026, which further indicates the need to accelerate diversification.

“A robust digital economy must rest on the pillars of competition, contingency, and continuity. These principles should continue to shape our institutional and infrastructural priorities,” Sridharan said.