Why do UPI transactions fail and which banks have most failures?

Nisha needed to send some money for her mother’s medicine. When she tried to do it via UPI, the transaction failed. The money was deducted from her bank account but didn’t reach her mother’s account. Like Nisha, a large number of people use UPI for payments due to its easy process, leading to its increasing nationwide popularity. According to NPCI data, in May 2024, there were over 14 billion UPI transactions, marking a 49% increase annually. In May alone, transactions exceeding ₹20 lakh crore were processed via UPI. But many people have to deal with similar issues like Nisha.

Why do UPI transactions fail and which banks have the most failures? What should you do if a transaction fails? Let’s understand.

According to the National Payments Corporation of India (NPCI), there are two main reasons for UPI transaction failures. First is technical default, which occurs due to network-related issues from banks or NPCI. The second is business decline, often caused by user errors such as entering wrong PIN or account numbers, or exceeding transaction limits.

NPCI’s report indicates that smaller and mid-sized banks face more challenges with transaction failures for their customers. Banks like RBL Bank, India Post Payments Bank, Punjab & Sind Bank, Bandhan Bank and Central Bank of India have higher incidences of transaction failures. Baroda UP Gramin Bank had an average technology default rate of 16% between May 2023 to April 2024. Specific banks like RBL Bank recorded a 5.53% default rate, Andhra Pradesh Gramin Bank at 4.9%, and IPPB at 4.47%.

When it comes to beneficiary banks, Baroda UP Gramin Bank had the highest technology default rate at 12.15%, followed by Punjab & Sind Bank and Bandhan Bank at 3.11% and 3.09%, respectively.

The Reserve Bank of India (RBI) is concerned about the increasing instances of UPI transaction failures. RBI Governor Shaktikanta Das clarified that these issues stem from banks rather than NPCI or UPI itself. The system faces congestion when thousands of transactions occur simultaneously, leading to technical defaults in some banks. RBI has advised banks to enhance their server capacity to handle thousands of transactions smoothly.

Now, what should you do if your UPI transaction fails? If a UPI transaction fails and money is deducted from your account, you should file a complaint with your bank. According to RBI regulations, if a UPI transaction fails and money is deducted, it should be refunded by the next day (T+1). If the money does not return within this timeframe, remind the bank. Delay beyond a specific period may result in penalties for the bank, typically ₹100 per day.