NPCI cracks whip on non-compliant UPI apps

In a circular released on Friday, the National Payments Corporation of India (NPCI) has cracked the whip on non-compliant Unified Payments Interface (UPI) apps, instructing banks and payment service providers to reject UPI transactions generated from noncompliant apps.

The circular sent to all UPI supported banks in the BHIM ecosystem stated that it is mandatory for all UPI apps to have support for sending or receiving money through virtual payment addresses (VPAs), generate quick response (QR) codes for Bharat QR or UPI QR and accept payments by scanning, and respond to intent call on the same phone.

The NPCI stated that these guidelines must be mandatorily followed by bank and merchant apps, while those running merchant-only business are excluded on certain counts but are still required to accept and send payments through VPA. They must also have the ability toscan QR codes, and respond to collect requests that originate on other phones.

The objective behind this seems to be improving the interoperability between apps on the UPI platform, while there are concerns that the NPCI giving itself and banks the power to reject transactions originating from non-compliant apps could further ruin the user experience of UPI.

Earlier, Business Standard had reported on failed UPI transactions that were leading to money being stuck between banks, with no recourse available from the NPCI. An estimate by the NPCI’s former chief A P Hota suggested that the failure rates could be as high as 15 per cent, even though no official data is available.

“Above interoperability features must be enabled by April 16, 2018, by all BHIM UPI apps. The other compliance as per earlier circulars shall continue to be applicable. Payment service provider (PSP) bank must decline such transactions from non-compliant BHIM UPI apps after April 16, 2018, proactively. The NPCI reserves the right to decline the transactions for such non-compliant apps,” the circular had stated.

Industry watchers suggest this could be a dangerous precedent to be set on such a short timeline by the payments body.

Apps will take a few months to comply and already many UPI transactions are failing, so forcing compliance by declining transaction is not the way to go, said a bank’s top official, requesting anonymity.

Declining transactions is beset with problems, according to the official quoted above. He explained that if the NPCI declines the transaction, mostly the debit leg also will not go through, which is good. However, if destination PSP declines, debit leg could already be in processing in the originating bank, depending on the app implementation and it could lead to money being stuck, he said.

“In the absence of public failure rates, poor grievance mechanism support across UPI apps, the NPCI circular giving permission to PSPs to decline transaction as they deem fit on transactions initiating from non-compliant apps is dangerous. The NPCI, in allowing PSPs to decline transactions, shows disregard for consumers, as consumers need to know if their apps are compliant before transacting to minimise chances of failure,” said Srikanth Lakshmanan, founder of Cashless Consumer, a public education initiative on banking and digital payments.