Outages and taxes threaten UPI growth momentum in 2025

The (UPI), has experienced multiple significant outages in the past month, raising concerns about the robustness of the country’s most preferred payment platform.

On 12 April, UPI services were disrupted nationwide for the third time in 30 days, affecting millions of users and businesses relying on apps like Google Pay, PhonePe, and to complete transactions.

According to outage monitoring site DownDetector, over 2,100 complaints were reported by early afternoon on 12 April, with nearly 80 per cent of users unable to process payments. This outage follows previous disruptions on 26 March and 2 April, highlighting a troubling pattern of instability in the system.

The National Payments Corporation of India (NPCI), which operates UPI, acknowledged intermittent technical issues but has remained largely silent on the specific causes of these outages, leaving users and fintech experts seeking answers.

UPI has become the backbone of India’s digital economy, facilitating over 16 trillion transactions in January 2025 alone and handling more than 7,000 transactions per second. Moneycontrol reported that with approximately 40 crore unique users, UPI accounts for around 83 per cent of all digital transactions in India, with merchant payments constituting about 65 per cent of the volume.

The platform’s transaction volume surged 52 per cent year-on-year in 2024, reaching over 131 billion transactions for the financial year 2024, underscoring its rapid adoption across urban and rural India alike.

#UPIDown again. So strange!!
This is becoming way too frequent nowadays. First #UPI goes down, then banks declare their own “downtime” for UPI transactions.

India ka online payment system 😂😂😂! pic.twitter.com/tZmeLAdyjw

— Vijendra Yadav (@vijendrayadav08) April 12, 2025

Despite this growth, the recent outages have exposed vulnerabilities. Experts point to the overburdened banking infrastructure, especially in public sector banks like , whose higher technical decline rates contribute to system-wide slowdowns.

The complexity of coordinating multiple financial institutions and the ageing core banking solutions struggle to handle the massive volume of micro-transactions, many of which are below Rs 500.

Fintech executives and industry observers emphasise the urgent need for infrastructural upgrades and alternative payment frameworks to ensure resilience. The concept of a New Umbrella Entity (NUE) has been revisited as a potential solution to introduce competition, redundancy, and innovation into the payment ecosystem.

However, the success of such alternatives depends on overcoming existing banking infrastructure limitations.

The NPCI’s introduction of UPI Lite aimed to reduce load by handling small-value transactions separately, but adoption remains low, limiting its impact on overall system stability.

Experts also advocate for better fallback systems and diversified banking infrastructure to prevent future outages that could paralyse commerce, given that UPI is integral to everything from retail payments to IPO applications and loan disbursals.

Alongside these operational challenges, the government has introduced new taxation measures affecting UPI usage starting 1 April. As part of the Union Budget 2025, a tax on digital transactions including UPI payments has been proposed to broaden the tax base.

While exact details on the tax structure for UPI transactions are still evolving, the government aims to regulate and monetise the booming digital payments sector, which saw transaction values reaching over Rs 21.96 lakh crore in February alone.

This move is expected to generate additional revenue but may also impact user behaviour and merchant adoption rates. The government has raised income tax exemption limits and revised TDS thresholds simultaneously, indicating a broader effort to balance revenue generation with taxpayer relief.

Despite the critical role of UPI in India’s economy, there has been a notable silence from NPCI and regulatory authorities regarding the root causes of the recent outages.

This opacity fuels uncertainty and undermines confidence among users and businesses dependent on seamless digital payments. Industry experts call for greater transparency and detailed disclosures to enable stakeholders to understand challenges and participate in crafting robust solutions.

UPI remains a transformative force in India’s digital payment landscape, driving financial inclusion and convenience on an unprecedented scale. However, the recent spate of outages exposes systemic weaknesses that must be addressed promptly.

With transaction volumes soaring and new government taxes on the horizon, ensuring the reliability and scalability of UPI infrastructure is critical to sustaining India’s digital economy momentum.

The coming months will be crucial as NPCI and the government navigate these technical and regulatory challenges, balancing innovation, security, and user trust in the world’s largest real-time payment system.