Lessons from the UPI outage: Strengthening India’s digital payment ecosystem

India’s digital payments journey, driven by the Unified Payments Interface (UPI), has revolutionised the way the nation conducts transactions. With over billions of transactions processed monthly, UPI has become an essential utility, enabling seamless, real-time payments across urban metros and remote towns alike.

However, recent nationwide outages have revealed vulnerabilities that cannot be ignored. These disruptions have sparked widespread concern and renewed discussions about how India must strengthen its digital payment infrastructure to ensure long-term stability, scalability, and trust.

The scope and impact of the outage

Recent outages affected all major UPI platforms, including Google Pay, PhonePe, Paytm, and others. Users across the country experienced failed transactions, error messages during QR code scans, and prolonged delays in money transfers. These disruptions came during peak usage hours, catching millions off guard and leaving them unable to complete even the smallest of financial tasks.

From kirana store owners and street vendors to salaried professionals and cab drivers, a large segment of the population faced these glitches. For many, it was a harsh reminder of their dependence on UPI for daily transactions and how a seemingly minor technical disruption could snowball into a nationwide inconvenience.

Understanding the UPI ecosystem’s complexity

Behind every successful UPI transaction lies a sophisticated network: the front-end app, issuing bank, acquiring bank, and the NPCI switch all working in tandem within milliseconds.

This interdependent architecture means that a failure at any one point can stall or crash the transaction system-wide. In many recent cases, the bottlenecks originated at the bank or data center level, not necessarily within the apps themselves. This complex web of digital dependencies highlights the need for systemic resilience rather than piecemeal fixes.

The systemic challenge

Fintech executives and experts agree that these outages are more than one-off technical glitches. They are indicative of a larger, systemic strain caused by the explosive growth of UPI and the insufficient pace of infrastructure expansion.

As digital transaction volumes soar, the ecosystem is struggling to match capacity, particularly during high-demand periods. This has raised questions not just about scalability, but also about preparedness.

Regulatory interventions: NPCI’s corrective measures

To manage the rising traffic and reduce friction, the National Payments Corporation of India (NPCI) has introduced new operational guidelines. One key measure is the limitation of frequent non-financial transactions such as balance inquiries, which add to server load despite not involving actual money movement.

Another strategic intervention includes rescheduling UPI Autopay mandates to non-peak hours. These steps are aimed at streamlining server loads, reducing unnecessary transaction requests during rush hours, and improving overall system responsiveness.

While these are timely and essential steps, industry experts explain that deeper infrastructure-level changes are required to prevent future outages.

Lessons and the road ahead

India's experience with UPI outages offers several critical lessons that can help bolster the digital payment ecosystem for the future:

Invest in scalable infrastructure

As transaction volumes continue to grow, both fintech companies and banks must invest in robust, scalable backend infrastructure. This includes upgrading data centers, improving server capacity, and modernising legacy systems. The ability to process millions of concurrent transactions should be treated as a national digital priority.

Strengthen redundancy and failover systems

Building redundancy into the architecture, including alternative routing protocols and backup data centres, can reduce downtime during system failures. Having failover systems that automatically switch traffic during outages ensures minimal user disruption and increased reliability.

Decentralise the ecosystem

Currently, a significant chunk of UPI traffic flows through a handful of apps and payment service providers. This concentration creates potential points of failure. Encouraging a more diversified ecosystem with multiple players, including smaller PSPs and alternative payment platforms, can distribute load and mitigate systemic risk.

Enhance monitoring and transparency

Real-time monitoring systems that use AI and machine learning can detect and flag anomalies before they escalate. Additionally, user-facing transparency during outages, including status alerts and estimated recovery times helps to manage expectations and build trust during disruptions.

Diversify digital payment options

While UPI dominates, it's crucial to develop and promote other digital modes such as offline UPI, QR-code-based card payments, and voice-assisted payments. Encouraging users to adopt a wider range of digital methods will reduce pressure on any single platform and offer fallback options during outages.

Role of fintechs and banks

The responsibility of ensuring payment reliability doesn’t rest with regulators alone. Fintechs must proactively plan for scale and collaborate closely with partner banks to align on capacity needs and contingencies. Banks, on the other hand, must prioritize technology modernisation, like moving beyond outdated core systems that often become chokepoints.

Shams Tabrej, CEO at Ezeepay