NPCI asks banks to reject UPI transactions from non-compliant apps

Circular makes it mandatory for all UPI apps to support transmission of money through VPA, generate QR codes for Bharat QR or UPI QR

In a circular released on Friday, the National Payments Corporation of India has cracked the whip on non-compliant Unified Payments Interface apps, instructing banks and payment service providers to reject UPI transactions generated from non-compliant 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, generate QR codes for Bharat QR or UPI QR and accept payments by scanning, and respond to intent call on the same phone. 

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 to scan 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 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 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. PSP bank must decline such transactions from non-compliant BHIM UPI apps after 16th April 2018 proactively. NPCI reserves the rights to decline the transactions for such non-compliant apps,” the circular stated. 

Industry watchers suggest that 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 NPCI declines the transaction, mostly the debit leg also won't go through, which is good. However, if destination PSP declines, debit leg could already be in processing in 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, NPCI circular giving permission to PSPs to decline transaction as they deem fit on transactions initiating from non-compliant apps is dangerous. NPCI, In allowing PSPs to decline transactions, shows disregard for consumers as consumers need to know if their apps are complaint before transacting to minimize failure chances,” said Srikanth Lakshmanan, founder of Cashless Consumer, a public education initiative on banking and digital payments.