Why is UPI often down?

• The Unified Payments Interface (UPI) system in India experienced three outages in March and April, causing significant disruptions in payments on apps like GPay and PhonePe.

• One of the downtimes was caused by individual banks flooding the National Payments Corporation of India (NPCI) systems with transaction status checks.

• UPI payments work based on an architecture inherited from the Immediate Payment Service (IMPS).

• The NPCI is essential in this process as it encrypts PIN information and sends payment information forward to a payer’s bank.

• The NPCI is structured as a collective of banks, with public sector banks holding the bulk of its shareholding.

• To reduce the impact of downtime, the NPCI has created UPI Lite, which allows users to set aside up to ₹2,000 for payments without having to punch in a PIN.

• Banks have historically had a rocky relationship with UPI, as they are unable to collect significant fees on transactions.

• The RBI estimated that banks incur a cost of ₹0.80 per transaction due to SMS notification costs and costs incurred in maintaining and updating records of each payment.

• The Ministry of Electronics and Information Technology has tried a “carrot and stick” approach with its annual UPI incentive programme for banks, which penalizes banks whose performance suffers over the course of a year.