NPCI warns fintech for use of barred UPI IDs

National Payments Corporation of India warns Fintech

• The National Payments Corporation of India (NPCI) is reportedly taking a firm stance against unauthorised use of virtual IDs generated for Unified Payments Interface (UPI) transactions.
• According to a report in Economic Times, certain fintech firms have been offering a service that allows businesses to authenticate users using their UPI IDs, a practice that violates NPCI and Reserve Bank of India guidelines.
• All member banks and third-party payment apps have also received a copy of the letter.
• In a letter to fintech companies, NPCI has instructed them to discontinue these unauthorised services. The letter states that UPI APIs are solely for facilitating UPI payments and user verification for fraud prevention and should not be used for any other purpose.

Severe action for violation

• Identity verification platforms, payment aggregators, and other fintech have been offering this service by leveraging UPI application processing interfaces (APIs) provided by NPCI. These APIs enable businesses to integrate their systems and facilitate information flow.
• NPCI has emphasised that participating members are prohibited from entering into commercial arrangements with third parties for the provision of "APIs as a service." Any violations of these guidelines will be dealt with strictly, including penalties or cessation of UPI services. “Any violation of these compliance guidelines will be dealt with the utmost severity, including the imposition of penalties or cessation of UPI services," the letter added.
• This move comes amidst growing concerns over the unauthorised collection and use of sensitive data by fintech companies. While this does not represent a data leak, the collection of data through UPI IDs, such as the customer’s name and account status, has raised concerns about privacy and regulatory compliance. According to industry insiders, some fintech firms have already stopped these services following NPCI’s intervention, while others continue to operate.

What is NPCI?

• National Payments Corporation of India (NPCI), an initiative of the Reserve Bank of India (RBI) and Indian Banks’ Association (IBA), is an umbrella organisation for operating retail payments and settlement systems in India. NPCI has ten core promoter banks—State Bank of India, Punjab National Bank, Bank of Baroda, Canara Bank, Bank of India, HDFC Bank, Citibank, HSBC, and ICICI Bank.
• The organisation functions under the provisions of the Payment and Settlement Systems Act, 2007 in order to create robust payments and settlement infrastructure for India. It is a non-profit organisation set up under the provisions of Section 25 of Companies Act, 1956 (now, Section 8 of Companies Act, 2013). NPCI aims to provide infrastructure to the whole banking industry, both physical and electronic payment and settlements system.
• What does NPCI offer?
  What does NPCI offer?
  • National Financial Switch (NFS) ATM network with 37 member banks and connecting 50,000 ATMs
  • Immediate Payment Service (IMPS) lets you transfer money in real-time around the clock, 365 days of the year.
  • Aadhaar-enabled Payment Service (AePS) is a result of the attempt to further speed track financial inclusion in the country
  • Cheque Truncation System (CTS) facilitates extended cut-off time to accept customer cheques by banks and reduces timelines for clearing
  • RuPay is a new card payment system launched to satisfy RBI’s vision to offer a domestic, open-loop, and the multilateral system. This made it easier for Indian banks and financial institutions to implement electronic payments
  • National Automated Clearing House (NACH) is a web-based solution that facilitates interbank, high volume electronic transactions that are repetitive in nature
  • Aadhaar Payment Bridge (APB) System is used by the government and government agencies to make direct benefit transfers with respect to various Central and state-sponsored schemes.

Editor’s Note