Rising transaction failure rate challenges India’s digital payment sector

Written by Ben Jiang Bin Published on 

The past few months have witnessed Indian digital payment sector’s meteoric growth, an achievement accompanied by spiking transaction failure from outdated bank infrastructure.

India’s Unified Payments Interface (UPI) transactions have been on a rising streak due to the accelerated digital adoption among the country as a result of the pandemic, though there is one ghost looming over the fast-growing mobile payment sector: transaction failures.

UPI transactions have jumped from 1.2 billion in May to November’s 2.2 billion, a more than 83% increase over the past six months. The meteoric increase in transactions also weighed down local banks’ outdated digital infrastructure, which is believed to be responsible for the sudden increase in unsuccessful transactions as it could not handle the spike in volume of payments.

Data released by NPCI, the National Payments Corporation of India which developed UPI to facilitate inter-bank digital transactions, shows that in September, the transaction failure rate stands at 3% for ten of the top 30 banks in India, while nine out of the ten banks are state-backed.

The United Bank of India recorded the highest failure rate of 12.4%, followed by Canara Bank’s 5.9% and 5.3% for State Bank of India.

In July, the failure rate for most of the top 30 banks was less than 1%.

A banker told local media that “every UPI transaction hits the banks’ core banking system (CBS). The tricky part is that in the UPI architecture, every transaction is clocked twice, once by remitting banks and then by receiving banks. This can lead to a pile-up of credit reversal failures especially as nobody anticipated UPI volumes to double in such a short span.”


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