The Reserve Bank of India (RBI) is considering taking a significant step to curb the rising incidence of digital payment fraud. A recent RBI discussion paper proposes implementing a one-hour delay on digital account-to-account transfers exceeding ₹10,000. Banks have offered a mixed response to this proposal. While they acknowledge its merit from a security perspective, they are also concerned about the potential increase in IT infrastructure costs and the impact on UPI's core identity as an 'instant payment' system.

Why has the RBI proposed a one-hour delay?
The primary objective of this proposal is to rein in the rapidly growing volume of online fraud. According to statistics, transactions exceeding ₹10,000 account for 45% of all fraud cases (by volume) and 98.5% of the total fraud value. Over the past five years, the monetary value of digital fraud has surged 41-fold, reaching approximately ₹23,000 crore. In this context, a one-hour delay would provide the sender with a 'window' during which they could cancel a suspicious transaction.

Will this compromise UPI's 'instant payment' feature?
Bankers have expressed concern that UPI's greatest strength lies in its ability to facilitate payments in the blink of an eye. A system involving 'lagged credits' runs counter to this fundamental ethos. However, Technical Service Providers (TSPs) and bankers also acknowledge that deliberately introducing a degree of 'friction' into the system to prevent fraud is the need of the hour—even if it results in a slight reduction in user convenience.

What challenges do banks face in implementing this?
Currently, approximately 80 to 85 crore (0.8–0.85 billion) UPI transactions are processed daily. If even a small fraction of these transactions were required to be placed 'on hold' within the system for one hour, it would necessitate a massive IT infrastructure upgrade. To implement this, changes will need to be made at the 'switch level,' and data storage capacity will have to be significantly expanded. Rather than relying on the core banking layer, the entire onus for this will rest on UPI switch vendors, which will result in a substantial increase in costs for banks.

Have banks requested a change in the limit?
Banks are seeking to modify this limit to strike a balance between security and convenience. According to a senior official at a private bank, banks may request that this ₹10,000 limit be raised to ₹25,000 or higher, as the financial impact of potential losses is significantly greater in transactions involving larger amounts. Banks are currently discussing this matter with the Indian Banks Association (IBA) and Payment SROs, and they are scheduled to submit their feedback to the RBI by May 8.

Will there be delays in all types of payments?
No, the RBI has exempted merchant payments (payments made to merchants or shopkeepers) from this regulation. The rationale behind this is that merchants have already undergone verification (KYC) by the banks. This rule will primarily apply to peer-to-peer (individual) transfers. Furthermore, users will be provided with the option to 'whitelist' their acquaintances and accounts with which they transact regularly, thereby enabling them to send money to those specific accounts instantly and without any delays.

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