Sanjeev Ahluwalia | Fix Glitches In UPI Fast: National Symbol At Risk

It is quaint how nations adopt their national idols. The Statue of Liberty, donated by the French, once symbolised freedom and civil rights in America for immigrants. China revels in the mystique of the Forbidden City, inherited from the Quing dynasty by the Communist Party of China. India -- for long perceived as a land of elephants and snake charmers -- transitioned to a digital identity in 2010 when the Aadhaar was rolled out as a unique identifier.

The digital payments stack built upon that single achievement now has the Unified Payment Interface (UPI), which promises instant payments, clearance, and settlement since its launch in April 2016. Speaking on the occasion, tech guru Nandan Nilekani declared that “UPI shall change the landscape of payments in the country”, and so it has. In 2023-24, UPI transactions (22.3 billion) accounted for 70 per cent of retail

credit transactions by number and 12 per cent by value.

The unique proposition in UPI is the ability to transfer funds and receive payments from a mobile phone including via QR code, phone number or an email-like unique identity generated by the bank where an account is held -- thereby becoming an advanced version of the Immediate Payment Service (IMPS) launched by the NCPI in 2010. The instantaneous nature of settlement is particularly attractive for India’s over 100 million small vendors and street hawkers. They no longer stock small value notes for settling cash payments, needed earlier for customers without the exact amount payable in cash. For customers, it is easier to record expenditure and safer than carrying cash -- though hanging onto your mobile phone now remains a worry in crowded bazars or on the streets.

The National Payments Corporation of India (NPCI) manages the UPI platform. It is a non-profit company under Section 8 of the Companies Act 2013. The Reserve Bank of India is the regulator for all payments under the Payments and Settlement Systems Act 2007. Equity in NPCI is held by banks and financial institutions, thereby approximating the holding pattern of SWIFT (Society for Worldwide Interbank Financial Telecommunication) for international payments -- a cooperative society under Belgian law -- with banks, brokers, dealers, and investment managers as members. A board of directors oversees SWIFT’s management and strategy to ensure global neutrality. Central banks from the G-7 countries, including the European Central Bank and the National Bank of Belgium, help in overseeing operations.

As SWIFT is for international payments, the NPCI is the dominant player in domestic payments. Unlike SWIFT, the NCPI has a monopoly over digital payments in India. In 2020 the RBI initiated the process to create competition and enhance innovation via a new umbrella authority -- either a non-profit or privately owned. Bids were called in 2021. But the initiative spluttered out. Like any well-run monopoly, NCPI is financially well-endowed. It has developed many new services like a credit card -- RuPay in 2012, BHIM 3.0 -- a proprietary payment app in 2016, which offers services in over 15 Indian languages, enhanced money management tools like split expenses, family mode, spend analytics, and action needed reminders designed to work in low-speed Internet areas. Thirty-four third party payment apps, like Paytm, Google Pay and PhonePe, are linked to UPI. Revenue increased by 39 per cent in 2023-24, cost by 47 per cent and margin (surplus generation) was 39 per cent of revenue. The source of revenue is membership and compliance fee from member banks (up from 29 in 2016 to 661 in 2024), and a percentage of the transaction value processed by its partner banks through NCPI applications like IMPS and Bharat Bill Pay System.

The envisaged expansion into international markets by its subsidiary NPCI International Payments Ltd (NPIL) will further diversify the revenue stream.

More recently, the UPI network suffered multiple outages. In January 2022, the outage was over three hours. This increased to three outages thus far in 2025: half an hour in March due to a malfunction of NCPI switches with banks, another outage on April 2 and an outage of five hours on April 12 -- explained as being due to the excessive load of transaction confirmation requests from banks. In response, NCPI rationed the number of such requests per bank to manage the demand side. This is little more than firefighting like state-owned electricity distribution companies do to manage a demand spike by switching off electricity supply on a hot day, rather than bringing on reserve generation capacity to meet the demand.

The commonsense explanation is that either management has worsened or investment in a systems upgrade has fallen behind the increased business load -- the latter is more likely with the business growing by 30 per cent in 2024. But quasi-government status and monopoly powers, which NCPI enjoys, are powerful tranquilisers. It is notable that in China, under the supervision of the People’s Bank of China, privately owned Alipay and WeChat (owned by Tencent) manage mobile payments, with transaction values an order of magnitude higher at $27 trillion in 2018 versus $2.5 trillion in India, in 2024.

The NCPI should consider adopting Kaname Akamatsu’s “flying geese model of development”. It should vacate space in the domestic digital payments market by partnering with “fit and proper” private entities on a regional or state-wise basis and focus instead on developing its international business, which is the foundation for future monetary, financial and payment links complementing the overseas economic outreach of Prime Minister Narendra Modi.

If the might of the American dollar is humbled by recession and domestic policy uncertainty, alternative reserve currency arrangements will need to be thought through. A regionally integrated payments system gives scope for India’s substantive participation. At a time when global regulatory institutions are teetering, NPCI is well placed to compete with SWIFT using new technology to reduce the cost, enhance the speed and preserve the security and reliability of international transfers. It’s international payments subsidiary, NIPL, already partners with Discover Financial Services (USA), Japan Credit Bureau (JCB), UnionPay International (China), Royal Monetary Authority (Bhutan), Ministry for Digital Transformation (Trinidad and Tobago), Network for Electronic Transfers (Singapore) and Network International (UAE).

As cracks have developed in India’s domestic digital payments system UPI, though regrettable, some solace can be taken from the fact that even the redoubtable SWIFT is not free of interruptions and transparent acceptance of problems are as niggardly and dissatisfactory as in the case of the UPI. Adam Smith’s invisible hand of competition must be applied if markets are to work efficiently.

The writer is Distinguished Fellow, Chintan Research Foundation, and was earlier with the IAS and the World Bank