New UPI Rule: Auto Chargeback Processing to Begin from February 15

A chargeback is a mechanism that reverses a completed Unified Payments Interface (UPI) transaction due to disputes, fraud, or technical errors. The process is typically initiated by the payer’s bank when a customer raises a complaint about an unauthorized or incorrect transaction. If the chargeback request is approved, the payer receives a refund.

Why Has NPCI Introduced This New Chargeback Rule?

The National Payments Corporation of India (NPCI) has introduced a major update to the chargeback process for UPI transactions, which will take effect from February 15, 2024. The change aims to improve dispute resolution, reduce penalties, and streamline reconciliation efforts between banks.

Challenges with the Current System

Currently, remitting banks can initiate chargebacks from the same day (T+0). However, this often occurs before the beneficiary banks have had time to reconcile transactions. As a result, many return requests are rejected due to processing delays.

In certain cases, chargebacks are automatically closed under "deemed acceptance", which can lead to penalties imposed by the Reserve Bank of India (RBI). This has created inefficiencies and financial losses for banks.

The Solution: Auto Chargeback Processing

To address these challenges, NPCI is implementing an automated chargeback resolution system based on Transaction Credit Confirmation (TCC) and Return Requests (RET) raised by the beneficiary bank during the next settlement cycle.

Key Highlights of the New Chargeback System

1. Automatic Processing of Chargebacks

   • Chargebacks will be automatically accepted or rejected based on transaction status confirmation.

   • This will help reduce the burden of manual intervention in dispute resolution.

2. Integration with the UPI Dispute Resolution System (URCS)

   • The new rule applies only to bulk upload options and the Unified Dispute Resolution Interface (UDIR).

   • It does not affect front-end dispute resolution processes used by customers directly.

3. Additional Time for Beneficiary Banks

   • Banks receiving payments will now have a settlement cycle to reconcile transactions before chargebacks are processed.

   • This will reduce the number of unnecessary return request rejections.

Impact on Banks and Customers

For Banks

• More Efficient Reconciliation: The system allows banks to match transactions before chargebacks are processed, improving overall accuracy.

• Reduced Penalties: By minimizing incorrect chargebacks, banks can avoid penalties from the RBI.

• Improved Dispute Management: The new framework ensures that disputes are handled more effectively, reducing operational inefficiencies.

For Customers

• Faster Refunds: With automated chargeback processing, customers may experience quicker dispute resolutions.

• Better Transaction Security: The updated system aims to enhance fraud prevention by reducing loopholes in the chargeback process.

Final Thoughts on the UPI Chargeback Rule Update

The NPCI’s new rule for chargeback automation is expected to enhance transaction security, improve banking efficiency, and create a more seamless UPI experience. By allowing banks to reconcile transactions before processing chargebacks, the update ensures a more fair, transparent, and efficient dispute resolution system.

As UPI transactions continue to grow in India, these regulatory advancements will help maintain trust and reliability in digital payments.

Conclusion

The introduction of automated chargeback processing in UPI transactions marks a significant step toward enhancing the efficiency and transparency of India’s digital payment ecosystem. By leveraging Transaction Credit Confirmation (TCC) and Return Requests (RET), the new system ensures that chargebacks are processed more accurately, reducing unnecessary disputes and penalties for banks.

For customers, this update means faster refunds, improved transaction security, and a smoother dispute resolution process. Meanwhile, banks benefit from better reconciliation, reduced financial losses, and enhanced compliance with NPCI guidelines.

As UPI continues to be a dominant force in India’s digital payment landscape, this rule change reflects a broader commitment to innovation, security, and reliability. By addressing existing inefficiencies, NPCI is paving the way for a more resilient and customer-friendly UPI ecosystem.