Prime Highlights
- Recent UPI outages are being linked to outdated banking infrastructure, not the NPCI system.
- Fintech leaders call for urgent modernization of bank IT systems and the adoption of alternative solutions.
Key Facts
- In May 2024 alone, there were 31 UPI service disruptions, amounting to over 47 hours of downtime.
- Public sector banks showed higher failure rates, with some surpassing the RBI’s 1% failure rate threshold.
- The RBI initiated UPI Lite to divert low-value transactions away from core banking systems.
Key Background
India’s digital payment ecosystem has witnessed startling growth over the past few years, with the Unified Payments Interface (UPI) being the anchor of the revolution. UPI, processing over 450 million transactions daily, is at the heart of the nation’s aspiration for a cashless economy. Recent service outages have, however, raised questions about the scalability and reliability of existing banking infrastructure.
These disruptions, which have occurred on a number of instances over the last few months, have predominantly been caused by technical issues at individual banks and not because of any failure within the UPI system itself, which is operated by the National Payments Corporation of India (NPCI). Regulatory agencies have stated that the majority of banks—largely government-owned—are lagging behind in terms of how they can adapt to the surge in digital transactions due to a lack of sufficient investment in their information technology setup.
The Reserve Bank of India (RBI) has issued a stern warning regarding the scenario, and it points out that banks must bring their technology mechanism into sync with the rising number of transactions. Even though the RBI does not need IT upgradation budgets, it has emphasized pre-emptive investment to prevent future service disruptions. The central bank has also introduced UPI Lite, a new feature that enables small-value transactions via an on-device wallet and is intended to reduce bank servers and make it more stable.
Top players in the fintech space have also lamented the current infrastructure of digital payments. They opine that apart from regulatory pressure, the private sector must invest more so that the system can be made stronger and competitive. The industry is also threatened by concentration where a few players control most of the market. Experts opine that making space available to new entrants and making it viable for ease of experience in transactions would be the key in making India’s digital economy good health in the long term.
RBI remains observing the environment closely and will soon come up with new guidelines that would put banks in a position to absorb the growing load of digital transactions.
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