When India's Digital Lifeline Failed: Inside the UPI Outages of 2025
From Mar 26th to Apr 12th, 3 weeks, and 3 UPI outages. A deep dive into digital India's lifeline, How does UPI work, and what is next in payments?
The Promise and Peril of a Cashless Society
In the bustling streets of urban India, the small black and white QR codes had become as ubiquitous as the vibrant street vendors themselves. From high-end shopping malls to roadside chai stalls, the Unified Payments Interface (UPI) had transformed India into a global leader in digital payments. The humble QR code became the symbol of India's leap into a cashless future – a democratic financial tool that anyone with a smartphone could access. No longer did Indians need to worry about carrying cash; a simple scan and tap was all it took to pay for anything.
Until it wasn't.
On March 26, 2025, as evening shoppers pulled out their phones to make routine payments, the system that had become the backbone of India's daily commerce simply stopped working. The digital lifeline that processed over 19 billion transactions monthly had faltered, leaving millions stranded mid-transaction. Restaurant bills remained unpaid, auto drivers couldn't receive fares, and grocery purchases were abandoned. The second outage, barely a week later on April 2, only deepened the crisis of confidence. And then again 10 days later, on April 12th. The very system designed to liberate Indians from the constraints of physical currency had, ironically, left them more vulnerable than ever.
What's concerning is the muted responses and vague answers we got from National Payment Corporation of India (NPCI), on these outages. Sure, there were technical glitches, but so many of them in rapid succession?
So, after months of hibernation, The Fintech Chronicler is back with this technical analysis explores what happened behind the scenes, examining the architecture that powers UPI, the possible root causes of the outages, and brainstorming an improved design that could prevent such failures in the future.
Buckle up, because this is one long read you don't wanna miss!
Understanding the UPI Ecosystem: Key Players and Components
Before diving into what went wrong, we need to understand how UPI functions normally. The UPI ecosystem consists of several interrelated components working in concert:
Key Components in the UPI Ecosystem
End User: The consumer initiating a payment through a smartphone.
Third-Party App Provider (TPAP): Applications like Google Pay, PhonePe, and Paytm that provide the user interface for UPI transactions. These apps don't process payments themselves but serve as front-ends to the UPI system.
Payment Service Provider (PSP): Typically banks that handle the authentication and processing of UPI transactions. They manage the user's UPI registration, validate credentials, and route transaction requests. Every TPAP must partner with a PSP to offer UPI services.
National Payments Corporation of India (NPCI): The central organization that developed and operates the UPI platform. NPCI manages the core infrastructure, including the UPI switch that routes transactions between banks.
Remitter Bank: The sender's bank that debits funds from the user's account.
Beneficiary Bank: The recipient's bank that credits funds to the payee's account.
UPI Switch: The central routing mechanism operated by NPCI that directs transaction requests between different banks and payment service providers.
Settlement System: The mechanism that handles the actual movement of funds between banks after transactions are processed.
This ecosystem operates on a 24/7 basis, processing peaks of over 4,000 transactions per second during busy periods, with transaction values ranging from a few rupees to the maximum limit of ₹100,000 per transaction.
The UPI Transaction Flow: Step by Step
A typical UPI transaction involves multiple steps across various systems. Understanding this flow is crucial to identifying where failures occurred during the outages.
Initiation:
The user opens a UPI app and either scans a QR code or manually enters the payee's Virtual Payment Address (VPA)
The user enters the payment amount and purpose (optional)
The app requests the user's UPI PIN for authentication
Processing by PSP:
The app sends the encrypted transaction request to its PSP
The PSP validates the user's credentials and transaction details
The PSP forwards the request to the NPCI UPI switch
NPCI Processing:
The UPI switch validates the Virtual Payment Address (VPA) format
It identifies the remitter and beneficiary banks from the VPAs
The switch routes the debit request to the remitter bank
Remitter Bank Processing:
The remitter bank verifies the UPI PIN and checks available funds
If verification passes, it debits the user's account
The bank sends a confirmation to the NPCI switch
Beneficiary Bank Processing:
The NPCI switch sends a credit instruction to the beneficiary bank
The beneficiary bank credits the payee's account
The bank confirms the credit to the NPCI switch
Confirmation:
The NPCI switch sends the transaction confirmation to the PSP
The PSP forwards the confirmation to the app
The app displays a success message to the user
This entire process typically completes in 2-5 seconds during normal operations. Each step is subject to timeout limits, after which the transaction is marked as failed or uncertain.
UPI Payment Money Settlement Flow: Onus vs. Off-Us Transactions
Once a UPI transaction is authorized, the actual movement of funds follows one of two settlement paths, depending on whether both accounts are at the same bank or different banks. And contrary to popular beliefs, the money flow does not happen instantaneously.
Onus Transactions (Same Bank)
When both the payer and payee hold accounts at the same bank:
The transaction is processed entirely within the bank's internal systems
The bank simply makes a ledger entry, debiting one account and crediting the other
No external settlement is required
The transaction is settled instantly and final
Off-Us Transactions (Different Banks)
When the payer and payee hold accounts at different banks:
Real-time authorization occurs through the UPI switch, enabling immediate fund transfer appearance to users
The actual interbank settlement follows the IMPS (Immediate Payment Service) process:
NPCI calculates the net position between all participating banks multiple times daily
Banks with net debit positions transfer funds to those with net credit positions
Final settlement occurs through the Reserve Bank of India's current accounts
While users see immediate transaction confirmation, the actual interbank settlement typically happens in predetermined settlement cycles throughout the day
The settlement process is critical as it ensures the actual movement of funds between financial institutions, maintaining the integrity of the banking system despite the real-time appearance of UPI transactions to end users.
Technical Architecture of UPI Services: Behind the Scenes of a UPI Payment
The UPI system's technical architecture is designed for high availability, security, and throughput. It consists of four primary layers working in concert:
Key Technical Components:
API Gateways:
Secure entry points for all UPI transactions
Handle API versioning, rate limiting, and security validations
Act as the primary interface between apps and the UPI system
Load Balancers:
Distribute incoming traffic across multiple servers
Monitor server health and route requests accordingly
Critical for handling traffic spikes during peak periods
VPA Directory:
Central database mapping Virtual Payment Addresses to bank accounts
High-performance lookup system for transaction routing
Constantly updated as users create or modify VPAs
Transaction Router & Processor:
Core system that determines transaction paths
Manages transaction state throughout the process
Handles timeouts, retries, and error conditions
Bank Connector:
Interfaces with various bank systems
Manages connection pools to each participating bank
Translates UPI protocols to bank-specific formats
Monitoring Systems:
Real-time monitoring of transaction volumes, success rates, and latencies
Anomaly detection to identify potential issues
Alerting and reporting capabilities
Technical Specifications:
Throughput: Designed to handle 4,000+ transactions per second
Availability Target: 99.99% uptime (less than 53 minutes of downtime per year)
Response Time: Sub-second response time for most operations
Data Encryption: End-to-end encryption of transaction data
Authentication: Multi-factor authentication for all transactions
Hosting: Distributed across multiple data centers with redundancy
This architecture was theoretically designed for high reliability through redundancy and fault tolerance. However, as the outages revealed, several critical vulnerabilities existed in the actual implementation.
The March 26, 2025 UPI Outage: When Financial Year-End Met Peak Traffic
The first major UPI outage began around 6:00 PM IST on March 26, 2025, and lasted approximately 3.5 hours, affecting millions of transactions nationwide during the evening peak period.
Timeline of Events
Technical Causes Identified
The official NPCI statement attributed the outage to "intermittent technical issues" due to "financial year-end closing at the bank-end." However, a deeper technical analysis revealed multiple cascading failures:
VPA Verification Service Overload:
The centralized VPA directory service experienced CPU utilization exceeding 95%
Response times for VPA lookups increased from typical 50ms to over 2,500ms
Memory utilization approached 100%, leading to garbage collection storms
Bank Connection Pool Exhaustion:
Fixed-size connection pools to bank systems were rapidly exhausted
Banks simultaneously processing year-end operations prioritized those over UPI requests
Connection timeouts increased, with some banks showing 45%+ timeout rates
Transaction State Management Issues:
The transaction processor became overwhelmed with pending requests
State inconsistencies emerged as transactions timed out but weren't properly terminated
Retry mechanisms exacerbated the problem by amplifying load
Database Contention:
Database connection pools reached saturation
I/O operations slowed due to competing workloads
Query response times increased by 15x during peak outage
Impact Analysis
The March 26 outage had significant measurable impacts:
Transaction volume dropped by 7% (approximately 41 million fewer transactions)
Estimated financial value of disrupted transactions: ₹51.25 billion (~$685 million)
User complaints peaked at approximately 2,750 at 7:40 PM IST
Major platforms affected included Google Pay, PhonePe, Paytm, and banking apps
Small businesses reported lost sales as customers couldn't complete alternative payments
The April 2, 2025 Outage: Recurring Nightmare
Just one week after the first major disruption, UPI experienced a second outage on April 2, 2025, beginning around 6:39 PM and lasting approximately 3 hours. This outage was particularly concerning as it occurred despite remediation efforts following the first incident.
Timeline of Events
Technical Causes Identified
NPCI attributed this outage to "increased latency" in the UPI network due to "fluctuations in the success rates in some banks." Technical analysis revealed:
Network Latency Issues:
Persistent increased network latency between NPCI and certain banks
Round-trip times increased from normal 100ms to over 500ms
Packet loss rates exceeded acceptable thresholds
Load Balancing Algorithm Inefficiencies:
Uneven distribution of traffic across available resources
Some nodes reached 100% utilization while others remained underutilized
No effective rebalancing during partial node failures
Transaction Rate Fluctuations:
Banks experiencing intermittent issues caused success rate variations
These fluctuations triggered retry storms from client applications
Each retry amplified the system load
Incomplete Recovery from First Outage:
System stabilization after the March 26 outage was incomplete
Temporary fixes created new vulnerabilities
Monitoring thresholds had not been properly recalibrated
Impact Analysis
The April 2 outage, while generating fewer complaint reports, had similar impacts:
Transaction volume dropped by approximately 5% (about 29 million transactions)
Estimated financial impact of ₹36.25 billion (~$485 million)
Peak complaint volume reached 534 reports
User confidence in UPI was significantly undermined by the repeated failure
Social media showed increasing frustration with the reliability of digital payments
Root Cause Analysis: Systemic Vulnerabilities
None of the apps were spared from this outage. Google pay, phonepe, paytm users all took to twitter on the outages.
And even after the 12th April outage, we have had nothing more to go on than intermittent technical outages. But if I had to take a guess below would be my favorite pick of the reasons.
Critical Technical Vulnerabilities
Centralized Architecture:
The VPA directory service operated as a centralized component without sufficient distribution
Single-region deployment created a geographic single point of failure
Lack of edge caching for frequent operations
Synchronous Dependencies:
Entire transaction chains operated synchronously
Failures in one component directly impacted others
No circuit breakers to isolate failing components
Inadequate Scaling Mechanisms:
Fixed connection pools to banking systems
Limited horizontal scaling for key components
Manual rather than automatic scaling
Ineffective Monitoring:
Focus on individual component metrics rather than end-to-end flows
Lack of predictive monitoring to identify emerging issues
Insufficient correlation between technical metrics and user experience
Absence of Resilience Patterns:
No implementation of circuit breaker patterns
Lack of bulkhead isolation between components
Absence of graceful degradation modes
Ineffective retry policies causing retry storms
Redesigning UPI: A Resilient Architecture Proposal for NPCI
Now, the below "proposal" I will be the first to admit, is basis my outdated working knowledge of UPI. I admit the last time I worked on UPI, was back in 2018, and I wouldn't be surprised if a lot, if not all of these have already been implemented by NPCI to make UPI more robust.
Key Architectural Improvements
Multi-Region Deployment:
Deploy UPI infrastructure across multiple geographic regions
Implement global load balancing with intelligent routing
Ensure no single region handles more than 40% of total traffic
Provide automatic failover capabilities
Distributed VPA Directory Service:
Implement distributed caching for high-speed VPA lookups
Deploy regional caches with periodic background refresh
Reduce direct database queries during transaction processing
Asynchronous Processing Model:
Replace synchronous processing chains with message queues
Implement event-driven architecture for transaction processing
Enable persistent storage of transactions during downstream failures
Implement fair work distribution across worker pools
Circuit Breaker Implementation:
Deploy circuit breakers for all bank connections
Configure custom thresholds based on historical performance
Implement half-open state for recovery testing
Provide fallback mechanisms for critical functions
Graceful Degradation Capabilities:
Design the system to provide reduced functionality rather than complete failure
Implement feature toggles for non-critical functions
Create tiered transaction processing with prioritization
Develop explicit degraded operation modes
Enhanced Monitoring and Early Detection:
Implement end-to-end distributed tracing
Deploy anomaly detection using machine learning
Create predictive alerting based on trend analysis
Develop real-time dashboards with business impact metrics
Transaction Flow in Resilient Architecture
The revised transaction flow would incorporate resilience patterns at every stage:
Building a More Resilient Digital Payment Infrastructure
The UPI outages of March-April 2025 exposed significant vulnerabilities in India's critical digital payment infrastructure. While the system was designed for high performance and widespread adoption, it lacked the resilience mechanisms necessary to withstand exceptional stresses like those encountered during financial year-end processing.
Sadly, the RBI and the government canned the New Umbrella Entity initiate. But in hind sight, had they actively approved licenses, Indians would have had a robust failsafe, in the 26th of March and 2nd of April.
True, there wasn't really much of innovation that was offered over and above UPI by any of the NUEs, but that could also be said of the payments space in general for the last 5 years right ? And besides, more than innovative usecases, I always felt the benefit of NUE was that it could offer redundancy and robustness against outages like in UPI. This would ensure smoother financial transactions across multiple platforms instead of relying on a single framework like UPI. Add interoperability into all the protocols, well then nothing like it.
But that really says a lot more about why the authorities are silent on this, doesn't it?
My hunch? Well, I assume that these outages would pave the way for CBDCs to pick up, and I wouldn't be surprised if we saw the RBI push for it, under the guise of it being built to be more resilient than UPI? Only time will tell.