UPI’s Struggle: Frequent Glitches and Growing Costs without Income

Moneylife Digital Team 15 April 2025

Consumer Interest

India’s popular digital payment system, the Unified Payments Interface (UPI), has been experiencing frequent technical problems in recent weeks. Launched by the National Payments Corporation of India (NPCI) in 2016, UPI handles massive volumes — nearly 7,000 transactions every second — across millions of users and banks. However, the recent outages have caused major disruptions for users and businesses.

The trouble began on 26 March 2025, when NPCI reported intermittent technical issues that led to partial declines in UPI transactions.

NPCI had faced intermittent technical issues owing to which UPI had partial decline. The same has been addressed now and the system has stabilised. Regret the inconvenience.
— NPCI (@NPCI_NPCI) March 26, 2025

Similar problems occurred again on 1st and 2 April 2025, with banks reporting reduced success rates for payments.

Today due to the financial year closing, some of the banks are facing intermittent transaction declines. UPI system is working fine, and we are working with the concerned banks for necessary redressal.
— NPCI (@NPCI_NPCI) April 1, 2025

NPCI addressed the situation on social media, stating that the UPI network was stable but certain banks were experiencing fluctuations that affected transaction speeds.

There were some intermittent declines in UPI due to fluctuations in the success rates in some banks. These fluctuations increased the latency in UPI network. NPCI has been working closely with them and UPI has been stable.
— NPCI (@NPCI_NPCI) April 2, 2025

Then, on 12th April, another major outage hit, causing nationwide disruptions. Some media reports speculated that the Indian Premier League (IPL) season and increased betting activity were to blame for the spike in traffic. However, this may not be accurate. On the day of the outage, UPI processed 550mn (million) transactions — less than the usual 620mn seen on many other days in March and April without issues.

NPCI is currently facing intermittent technical issues, leading to partial UPI transaction declines. We are working to resolve the issue, and will keep you updated.

We regret the inconvenience caused.
— NPCI (@NPCI_NPCI) April 12, 2025

Deepak Abbot, co-founder of fintech firm IndiaGold, told Moneycontrol that the real problem lies in overwhelmed UPI servers, especially those of large banks like State Bank of India (SBI) and HDFC Bank. These systems struggle to cope with transaction spikes, particularly during high-traffic events, he says.

The broader issue is financial sustainability. UPI transactions are free of charge, meaning neither NPCI nor the banks and payment apps involved make any money from them. Despite this, all players are expected to keep upgrading their systems to handle the ever-growing number of transactions.

From 1st to 13 April 2025 alone, NPCI handled nearly 7.86bn (billion) UPI and BHIM transactions worth over Rs11 lakh crore.

Back in August 2023, the finance ministry clarified that UPI would remain free for users. They called it a 'digital public good' that boosts public convenience and economic productivity. While they acknowledged that service providers needed to recover costs, the government said this would be done through 'other means'.

This announcement followed concerns raised after an RBI (Reserve Bank of India) discussion paper suggested possible charges for payment services in the future.

A joint report by PhonePe and Boston Consulting Group argued that a small merchant discount rate (MDR)—a fee merchants pay to accept digital payments—could help build a more sustainable UPI business model. A suggested MDR of 0.2%-0.3% could cover the costs of acquiring and maintaining merchants on digital platforms, they said.

Currently, UPI does not charge MDR, unlike debit and credit card transactions. The Payments Council of India (PCI), representing most of the industry, has urged the government to reintroduce MDR and let the market decide the rate. Before 2020, merchants paid less than 1% MDR on UPI transactions, but this was waived to promote digital adoption.

Experts believe zero MDR helped boost digital payments, especially among small vendors. In 2022, a top industry expert told Moneylife that zero MDR for small merchants has actually benefited merchants and consumers in the initial days and led to massive adoption of digital payments, especially for small payments to roadside vendors and others. "However, the incentive becomes absurd when it is equally applicable to large-ticket spending and big players."

"Why are we giving it free to big players like Amazon and Flipkart? Large offline and online retailers are not even bothered if the consumer uses UPI or other payment methods. They just want you to pay and complete the transaction. They do not want the customer to pay by cash because the returns for cash on delivery are around 25%. So 1% or 2% MDR has no bearing on such merchants," the expert pointed out. (Read: For How Long Will the UPI Ecosystem Survive without MDR Charges?)

For example, many e-commerce players, including Flipkart, Zomato and Swiggy, to name a few, have been levying a platform fee for every order. Even Indian Railway Catering and Tourism Corporation (IRCTC), which manages railway ticket bookings, levy convenience fees from everyone for using its platform. Generally, convenience fees are not refundable, even if the ticket is cancelled. In other words, it is pure income for IRCTC. No wonder it is earning a huge profit year after year.

UPI has transformed digital payments in India, making transactions fast, easy and free. But as the system grows and faces technical strain, questions arise about how long it can remain sustainable without generating any revenue. If service- providers are expected to continuously upgrade infrastructure without any compensation, the risk of more frequent outages—and a less reliable user experience—may only increase. A long-term solution is needed to balance accessibility with operational costs.

Comments

User

yazdi

4 weeks ago

Even a charge of Re. 1 per transaction would make it viable. Charging on a % basis on the value of the transaction is unfair

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