UPI Outages Explained: NPCI Strain and Bank Frictions

In March and April, India’s Unified Payments Interface (UPI) system experienced 3 major outages, affecting transactions on platforms like GPay and PhonePe. One such disruption was due to banks flooding NPCI’s servers with transaction status checks, as per news reports

How the UPI System Works?

UPI is based on the Immediate Payment Service (IMPS) architecture and allows customers to access bank accounts via mobile apps. Although designed as interoperable, almost all transactions are routed through the National Payments Corporation of India (NPCI).

 Srikanth Lakshmanan, a member of the Cashless Consumer project, explained in an interview with The Hindu, “The NPCI is essential in this process,” since it encrypts the PIN information, known only to the bank and sends the payment information forward to a payer’s bank. “So if there’s a downtime in the NPCI, there’s no way your bank would get your PIN. This is where it is a single point of failure.”

What Caused the NPCI Outages?

NPCI is owned by a consortium of banks, mostly public sector entities, which is in compliance with the Payment and Settlement Systems Act, 2007. While banks lead the implementation, recent incidents saw some flood NPCI systems with “check transaction” requests, overburdening the infrastructure.

To reduce reliance on full transaction flows, UPI Lite was introduced, allowing up to ₹2,000 payments without entering a PIN. However, Mr. Lakshmanan noted, “You don’t do a PIN authentication, but other communication still goes through NPCI. This is why even though UPI Lite is light, it still requires NPCI to be in the middle.”

Friction Between Banks and UPI

While UPI has transformed digital payments in India, recording over ₹58 crore transactions worth over ₹73,000 crore in a single day, banks earn little revenue. The RBI estimates ₹0.80 per transaction as a cost to banks, but without charging capabilities, financial pressure persists. They cannot charge a Merchant Discount Rate (MDR), reducing the motivation to maintain consistent uptime.

Mr. Lakshmanan explained that individual bank outages are more frequent than system-wide failures like NPCI’s, unlike global card networks like Visa or Mastercard, which maintain higher reliability through enforced service level agreements.

To compensate banks and encourage better service, the Ministry of Electronics and IT has implemented an incentive program, which penalises low-performing banks. “If you’re at the bottom [in terms of uptime], you get nothing,” Mr. Lakshmanan said.

Conclusion

The recent UPI downtimes highlight operational vulnerabilities within India’s digital payment infrastructure. With limited earnings and rising infrastructure costs, banks lack strong uptime incentives.

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