Prepping for tokenisation deadline, UPI transaction failures decline

Payment failures rose only marginally after RBI implemented its mandate on recurring payments, suggesting that the system should be able to handle the transition to tokenisation too

Last month, the Reserve Bank of India (RBI) extended the deadline for card tokenisation by another three months till September 30. The central bank decided against the July 1 deadline as the implementation was mired in problems, and not all payment players were ready with tokenisation. All companies would have to purge stored card information once tokenisation is implemented.

Tokenisation would be the second big shake-up from the central bank in two years. Last year, the RBI asked banks to cancel all recurring mandates and issued new guidelines for recurring mandates, disrupting the payment landscape.

The move led to a shift of businesses and users towards the Unified Payments Interface (UPI) as an alternative. A Business Standard analysis found that the increased reliance on UPI did not have much impact on the system. The RBI may be able to weather the tokenisation related problems easily.

Data from the National Payments Corporation of India (NPCI) shows that technical decline — transaction decline due to technical reasons, such as the unavailability of systems and network issues on the bank or the NPCI side — on UPI transactions for the top 30 banks increased only marginally from 1.43 per cent in the first six months of 2021 to 1.61 per cent in the second half of the year. Then, in the first six months of 2022, technical decline fell again to 1.4 per cent.

Meanwhile, business decline reduced drastically even as the volume of transactions increased significantly during this period and have only increased marginally to 7.68 per cent in the first six months of 2022.

It had declined from 9 per cent in the first half of 2020 to 7.4 per cent in the last half of 2021.

Transaction decline due to a customer entering an invalid pin, incorrect beneficiary account and so on, or other business reasons such as exceeding per transaction limit, exceeding permitted count of transactions per day, or exceeding amount limit for the day are classified as business decline.

Further analysis shows that State Bank of India was the most significant player in remitter banks as its volumes were as high as the following four banks combined. But the cases of technical decline were also five-six times higher than the following four banks.

A comparison between government and non-government players for the top 30 UPI remitter banks shows that technical decline for public sector entities was considerably higher compared to private entities. The average technical decline for public sector entities was 2.3 per cent; India Post Payments Bank had the worst track record, where one in every 10 transactions was declined. In comparison, private sector players had an average technical decline of 1.64 per cent, with Paytm Payments Bank having a technical decline rate of 0.06 per cent.

In short, public sector banks need to invest in technology to improve their technical decline rates.