RBI UPI Delay Plan Gets Banker Backing

'It is a tradeoff between convenience and fraud prevention.'

Bankers are not particularly averse to the Reserve Bank of India's proposal to introduce a one-hour delay for account-to-account digital payments above ₹10,000.

While the move is expected to increase costs due to required infrastructure upgrades, many believe a small amount of friction in instant payment systems could help curb rising fraud.

But they indicated that they may seek to revise the proposed threshold from ₹10,000 to around ₹25,000, or more.

RBI UPI delay proposal

They, however, noted that the core proposition of the instant payments system -- Unified Payments Interface (UPI) -- could be diluted, as "lagged credits" run counter to the ethos of immediacy, even if they enable bypass mechanisms such as whitelisting trusted contacts.

Bankers are likely to discuss the proposal with industry bodies, such as the Indian Banks' Association and payment self-regulatory organisations (SROs), and submit their feedback to the RBI by May 8.

UPI fraud and threshold debate

"Technically, it is feasible to introduce a delay. But till now, the overall focus and onus has been on having frictionless transactions," said an executive at a payments technology service provider (TSP).

"Introduction of deliberate friction requires changes at multiple levels since systems are fine-tuned in a certain way to process payments today," the executive said.

In a discussion paper released last fortnight, the RBI suggested measures to curb rising fraud in digital payments, including introducing a one-hour delay for digital payments above Rs 10,000 before they are credited to a beneficiary's account.

Other measures include additional authentication by 'trusted individuals' for vulnerable users, tighter scrutiny of accounts receiving large credits, and expanded customer-controlled safeguards.

UPI volumes and infrastructure challenge

"Most transactions have shifted online, with nearly 90 per cent routed through UPI," said a senior banker at a large state-owned bank.

"Building for such volumes -- where UPI transactions are touching 800 to 850 million per day and around 26 to 27 billion per month -- means that even holding a small fraction of these transactions would translate into a very large number," the banker added.

This, the banker said, would require changes at the switch level, including a different architecture and significantly higher storage capacity.

"Banks would also need to adopt a risk-based approach, develop mechanisms to contact the remitter, and design standard operating procedures," the banker added.

Costs and system upgrades impact

These upgrades are likely to increase costs, which TSPs will pass on to banks.

As a channel to process real-time transactions, the UPI switch is likely to experience some load at the current infrastructure size.

"All banks will depend on UPI switch vendors alone to comply with these changes if the guidelines are brought in because the core banking layer will not have any major modifications," a source said.

Rising digital payment fraud concerns

The proposal comes at a time when transactions above Rs 10,000 account for about 45 per cent of fraud cases by volume and 98.5 per cent by value.

Digital payment frauds have risen sharply -- by about 41 times over the past five years in value terms -- to nearly Rs 23,000 crore.

"As it is, in payments like UPI, nobody makes money. Rather, it is a huge IT infrastructure cost each bank incurs, and the support is not enough to compensate for the actual expenses.

"This is such a big change that people have to mull it over," the senior banker quoted above said.

According to him, while such measures could potentially dilute the core proposition of the robust payment systems built so far, some degree of friction is warranted given the rising incidence of digital frauds.

That said, the RBI has differentiated between payments to merchants -- where due diligence is undertaken during onboarding by banks or payment aggregators -- and individual-to-individual transfers, where, beyond basic KYC (Know Your Customer) conducted by the bank, there are limited additional checks.

"It is a tradeoff between convenience and fraud prevention.

"Whether it should be Rs 10,000 or Rs 25,000 can always be debated.

"My sense is, since it is still a discussion paper, they may raise it from Rs 10,000 to Rs 25,000 because the impact of a loss is much higher for larger amounts.

"And people can do whitelisting in case they have regular payments, so that should not be too much of an issue," said a senior banker at a private sector bank.

However, he said operationally it would be a challenge for banks and switch providers.

"You have to introduce a lag.

"There will be configuration required in terms of IT infrastructure because you cannot manually track this.

"This has to be done completely through the system.

"You will have a one-hour window.

"If you don't want to proceed, you can cancel; otherwise, it goes through," the person said.

Since the RBI has earlier said banks will have to compensate in case of frauds and losses, even a 20-30 per cent reduction in fraud would make this a worthwhile move.

"It becomes a question of savings due to reduction in fraud.

"It is a social good.

"It is not something that is strictly measurable," he added.

Feature Presentation: Ashish Narsale/Rediff