comscore ICICI Bank blocks UPI-based transactions on PhonePe; security concerns over mobile wallets to blame?

ICICI Bank blocks UPI-based transactions on PhonePe; security concerns over mobile wallets to blame?

PhonePe CEO Sameer Nigam has lashed out on Twitter accusing ICICI Bank of blocking UPI-based transactions since Friday.

phonepe by flipkart

Sameer Nigam, co-founder and CEO of mobile wallet app PhonePe has alleged that ICICI Bank has been blocking transactions on its platform since Friday. On Saturday, Nigam took to Twitter to lash out on ICICI Bank saying, Definitely on purpose! Over 10x txns failed. Bank is not reversing the block. PhonePe, owned by Flipkart, is a Unified Payments Interface (UPI) based e-wallet app that works on platform created by National Payments Corp. of India (NPCI). Powered by Yes Bank, PhonePe not only lets you send and receive money via UPI, but also allows you to recharge and pay mobile, DTH, broadband, electricity, gas and other utility bills. Also Read - Nothing Phone (1) available for pre-booking on Flipkart: Everything we know so far

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We are waiting for an actual confirmation from ICICI through either NPCI directly or through Yes Bank, but we have no official intimation from any party, Nigam told Mint. When BGR India reached out to PhonePe, the company said, “PhonePe has not received any official notice in this regards from NPCI or its banking partner YES Bank yet. Since Friday afternoon, ICICI Bank has blocked all their customers from using PhonePe, and even blocked any other bank’s customers from sending money to ICICI Bank’s customers using PhonePe. Also Read - Oppo K10 5G launching in India on June 8: Check details

BGR India also reached out to ICICI Bank and here’s what the spokesperson had to say, ICICI Bank is among the first few banks to introduce UPI through its mobile banking apps. We have also played a key role in conceptualizing the UPI initiative along with NPCI to bring in interoperability among banks for ease in payments. ICICI Bank is committed to support UPI and interoperability. Our customers and even non-customers can use BHIM and our mobile banking apps to link any of their bank accounts with other participating UPI banks and make seamless payments.”

Some banks including us have raised security related concerns at appropriate forums about the access to UPI data to a non-banking application. Further, this entity is following restrictive practices allowing users to make payments with only its UPI handle, which is in contravention to the UPI guidelines of interoperability and choice that empowers a customer to choose any app to make payments through UPI. Pending resolution of these concerns, we have temporarily declined to undertake UPI transactions originating from this entity,” the spokesperson added.

bhim app phonepe

The issue with failed transactions

The issue only seems to be with UPI-based transactions. I tried transferring money from ICICI Bank account using Pockets app to my PhonePe wallet, and it threw an error saying VPA is not valid, please try with another VPA. I even tried sending money from BHIM app (connected to ICICI bank), and it threw an error saying could not send money, beneficiary payment address restricted. ALSO READ: PM Narendra Modi launches BHIM app for mobile payments; here s how it works

phonepe vpa blocked

And if that wasn t enough, even HDFC bank seems to have blocked transactions to PhonePe. When I tried sending money via HDFC bank app, it returned an error saying transaction not permitted to VPA. I even tried making a mobile recharge using PhonePe app, with money being deducted via UPI-linked bank account, and no surprises here, got an error saying transaction for this VPA is blocked by the bank. However, I used my ICICI Bank credit card to make a mobile recharge, and it went through smoothly.

Previous instances

ICICI Bank is not the only one to block transactions on e-wallet apps. Last month, State Bank of India (SBI) had also disabled transferring money to Paytm via internet banking over security concerns. In turn, the bank urged customers to use SBI Bank Buddy wallet for transactions. However, SBI bank users can transfer money using credit and debit cards to Paytm. Wallets don t have proper risk mitigation measures in place and also don t ensure that one mobile number can use only one wallet. We have seen multiple cases of customers opening multiple wallets on a single mobile number and transferring the money from the bank account to these wallets and then transferring this to non-KYC complaint accounts, a senior SBI official told the publication. ALSO READ: UPI now available offline via USSD-based mobile banking; here s how it works

The real problem

Since demonetization of old Rs 500 and Rs 1,000 currency notes on November 8, 2016, the government has been urging citizens to embrace cashless mode of payments, and promoting digital transactions. In a step towards promoting cashless transactions, the government has also urged banks to waive off credit / debit card transaction fees. ALSO READ: Demonetization: Cash-based transactions worth Rs 25,000 crore move to digital mode

One of the biggest beneficiaries of this move has been mobile wallet operators and digital payment firms such as Mobikwik, Freecharge and Paytm. In fact, in the first week after demonetization, Paytm witnessed a massive jump from 115 million customers to 150 million. Other wallet companies did see a huge spike in their subscriber base. To attract more customers and embrace digital payments on their platform, mobile wallet companies have also been throwing some cashback and discount offers on transactions be it for mobile, DTH or data card recharge, or electricity, landline and gas bill payments. ALSO READ: Demonetization: MobiKwik to offer zero surcharge at petrol pumps, LPG payments

It s clear; banks don t look enthusiastic about the increasing subscriber base of non-bank payment firms. In fact, apps from HDFC Bank (Chillr), ICICI Bank (Pockets), and SBI Bank (Buddy) also offer users to make recharge and bill payments, sans cashback and discount offers. ALSO READ: Indus OS partners Freecharge to launch digital payment platform Recharge 2.0

Coming back to security concerns, bank and wallet companies are subjected to different regulatory and security standards. Mobile wallets have single 4-digit PIN access, whereas banks follow two-factor authentication (2FA). The wallet architecture is currently not interoperable which means customers using bank wallets cannot pay to those using wallets of other digital payment companies. So, why should banks allow these companies to have a free ride by transferring funds from their account to the wallet, a senior official from a private sector bank told Mint. ALSO READ: FreeCharge partners Axis Bank to launch UPI payment

Tough competition and challenges ahead

The government is trying hard to promote digital transactions and it will definitely reward in the long run, helping India become cash-less economy. However, there are plenty of challenges ahead. To begin with, the UPI platform was built for simplicity, allowing users to send and receive money with ease. However, instead of promoting UPI, banks have been promoting its own apps and in-house digital wallets.

The reason? UPI transactions don t offer any incentives to banks, something that they get with net banking, debit and credit card transactions. To address those issues, NPCI launched the Bharat Interface for Money (BHIM) app, which allows users to link any of their bank accounts. However, it only allows for peer-to-peer transactions, whereas for recharge and bill payments, users will have to switch to mobile wallets. With smartphone users switching to UPI and mobile wallets instead of cards and cash, things have just got tougher for the banks.

BONUS VIDEO: How to use the BHIM (Bharat Interface for Money) Android App for UPI payments

UPDATE – The post has been updated with statements from both PhonePe and ICICI Bank.

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  • Published Date: January 15, 2017 6:29 PM IST
  • Updated Date: January 15, 2017 11:38 PM IST

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