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A significant spike in Unified Payments Interface (UPI)-based transactions and a simultaneous rise in the number of failed payments calls for greater investment and focus on the banks’ capacity to handle increasing volumes, experts said.

Since its launch four years ago, the state-backed real-time payments system has become increasingly popular with consumers for online payments, barring a temporary dip in transactions during the nearly two-month nationwide lockdown.

Around 1.35 billion UPI transactions were recorded in the first 20 days of October, up 13% sequentially, while 1.8 million transactions worth 3.29 trillion were clocked in September alone, primarily due to faster adoption of contactless payments during the covid-19 crisis, accompanied by the festive season shopping spree.

However, instances of failed payment attempts due to network issues on the banks’ and National Payments Corp. of India’s servers have also been increasing gradually, especially for public sector banks, official data showed.

For instance, State Bank of India (SBI), which handles the maximum UPI transaction volumes, witnessed a failure rate of 5.31% of the 510 million transactions in September on account of network issues.

“The reason for failure in UPI transactions is inherent in the system’s architecture. UPI transactions require seamless and uninterrupted communication between five servers in 60 seconds. Any latency or break in communication will result in failure of transaction. As volumes grow, latency and breaks have higher chances of occurrence," said G.C. Pande, a former general manager of SBI, and Paymart co-founder.

If communication between the remitter bank with core banking fails, or the core banking system stops functioning, the transaction will be unsuccessful, Pande added. However, it is difficult to resolve the problem of failed transactions.

A senior official of a public sector bank said investment to upgrade technology in banks must go hand in hand with a surge in UPI-based payments that is being witnessed, especially after the outbreak of the coronavirus pandemic.

“Most of the banks have been focusing on investment in digital channels. But, improvement in technology to handle higher volumes and instilling public confidence in digital payments is crucial," he said, requesting anonymity.

An executive of a top payments firm said the NPCI will eventually have to push banks to overhaul their infrastructure to manage this new demand.

For instance, some payment platforms get advance notice if a bank’s server is down, so that they can stop initiating such transactions with a bank. This avoids incorrect deduction from a person’s account.

“NPCI needs to understand that this is a huge concern. September was really bad for all platforms due to the massive surge in transactions and banks not being able to support it," he said, seeking anonymity.

SBI is a special concern for platforms, as being the country’s largest lender, it has a large number of customers, he said.

“UPI payments don’t cost customers or merchants anything because the merchant discount rate, or MDR, is zero by order of the finance ministry, but this also means that banks have no incentive to really invest in making UPI work better or getting more customers. Hence, many banks passively discourage it," said technology and policy consultant Prasanto K. Roy.

shreya.n@livemint.com

Prasid Banerjee contributed to this story.

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