UPI transactions to see changes from February 15: What are they?

NPCI, the body overlooking regulations linked to UPI transactions in India, has announced changes

The National Payments Corporation of India (NPCI) has introduced changes regarding UPI transactions. The proposed changes, which will take place from February 15, concern auto acceptance and rejection of chargebacks.

NPCI has instituted changes related to UPI transactions which will be effective from February 15(Shutterstock)

What will change?

The NPCI has now rolled out the process of implementing auto acceptance/rejection of chargeback basis the Transaction Credit Confirmation (TCC) and returns raised by the beneficiary bank in next settlement cycle after the chargeback is already raised.

The beneficiary bank's move to raise a TCC or returns will determine whether a chargeback is accepted or rejected, eliminating the need for manual intervention.

What are chargebacks?

Chargebacks occur when a UPI deemed-approved transaction is reversed by the issuer, acquiring bank or NPCI before the bank which is receiving the amount can fully process it. They often create issues in managing disputes effectively since they often occur before a beneficiary bank gets a chance to verify and process a return.

When do chargebacks occur?

Chargebacks typically occur in any one of the following situations:

1. The customer does not recognise the payment
2. The customer raises a dispute with bank regarding the concerned transaction
3. A customer is charged for undelivered items
4. An error in transaction processing (for example: when the same transaction is processed twice)
5. A merchant makes a duplicate charge for the same transaction

Difference between chargeback and refund

A refund is processed when a customer raises a request with the service provider, like UPI payments portals, or with the merchant. However, a chargeback occurs when the customer raises a request with the bank, which then investigates and processes the claim.

Where does the problem arise?

Currently, chargebacks can be raised on the same day a transaction occurs. This means that disputes often escalate into chargebacks only because beneficiary banks do not have enough time to verify and process returns.

Because of this, some banks have raised requests for refund without first checking whether a chargeback had already been initiated. In such cases, chargeback is automatically closed on a deemed acceptance basis, which often leads to penalties from the Reserve Bank of India (RBI).

How will the changes resolve the issues?

The changes will be effective for bulk upload option and Unified Dispute and Issue Resolution (UDIR) but not in front-end option. This means that it will not be directly visible to customers in banking apps.