India’s digital payments highway seems to be riddled with potholes of transaction declines. While Unified Payments Interface (UPI), the smartphone-based digital payment platform, grows in volume every month, transaction failures among the larger banks also seem to be growing in tandem.
Data released by the National Payments Corporation of India (NPCI), which runs the UPI framework show that State Bank of India (SBI), which processes the highest number of UPI transactions, have seen failures jump to more than 5 percent in September 2020. This number, in August, was 3.8 percent.
For private sector lender Axis Bank, the number has shot up to 1.5 percent of the overall transactions in September, compared to 0.6 percent in August. For HDFC Bank, the number shot to 0.8 percent from 0.2 percent in the same period.
For Paytm Payments Bank and ICICI Bank, the number for September was 0.2 percent and 0.7 percent, respectively, compared to 0.04 percent for both in August.
Add to this the number of failures because of wrong pin or insufficient account balance, the overall transaction failures jump to more than 15 percent.
More transactions, more declines
SBI processed 510 million UPI payments in September, up 14 percent from 447 million in August. Axis Bank processed 157 million transactions, up 10 percent from 143 million in the same period, and, for HDFC Bank, the number was 154 million, compared to 141 million in August.
NPCI data segregates transaction declines into two buckets: one, where the problem lies with the bank’s or NPCI’s servers referred to as ‘transaction declines’, and, the second, where the problem is at the end of the consumer or the merchant like wrong pin number or wrong UPI ID or insufficient balance. It is the former which has shown the most significant jump.
Business declines have remained somewhat constant during the last two months for the top banks, data shows.
“The large banks which process bulk of the UPI transactions have not been able to scale up their systems along with the jumping volumes of payments,” said a top banker.
“There is an urgent need for banks to invest and scale up back-end processing capabilities to be able to support such massive volumes,” he added.
While the official number is not disclosed, industry insiders pointed out that monthly active unique users on UPI could hover around the 100-120 million mark. While the number of users has not grown exponentially, during the pandemic adoption of UPI has shown steady growth.
“UPI’s new user base is growing constantly around 3 percent every month,” said the banker quoted above.
Entrackr, in a recent story, said that in the first 15 days of October, UPI payments have crossed the billion mark, thereby predicting that it will finally manage to cross the 2-billion-mark this month. Just to put everything into perspective, total number of UPI transactions crossed the billion mark just in October 2019.
“The growth of UPI has been phenomenal, something never seen in the payments ecosystem in the past. Hence, banks are finding it difficult to keep pace,” said a founder of a fintech startup on the condition of anonymity.
Email queries sent to SBI, HDFC Bank and Axis Bank went unanswered till the time of publishing this report.
Another major issue seems to be MDR or merchant discount rate. MDR is the price merchants were paying banks for digital payment facilities. As per a government diktat, MDR on UPI has been made zero and industry insiders pointed out that was one of the reasons it was becoming difficult for banks to allocate more resources to support these platforms.
“When there is no money to be made on UPI payments, what is the incentive for banks to invest more,” said a banker with a private sector bank.
One more issue is the fact that players like Google Pay, PhonePe, Amazon Pay and Paytm corner more than 90 percent of the overall UPI payment volumes. This means that between SBI, HDFC Bank, Axis Bank, ICICI Bank and Paytm Payments Bank, most UPI transactions get processed.
“There are 174 banks live on UPI, but the system is such that all the four large banks corner bulk of the UPI payments,” said the banker quoted above. This has skewed the entire system against the smaller and new- age banks, thereby also causing problems.