Payments in India – Part 2: Why do Bank Transfers Fail?

In our previous post, we discussed how RTGS, NEFT, IMPS, UPI work. In the second part of this blog, we discuss why transactions across these modes fail. 

While discussing bank transfer failures – first, we will remove failures due to incorrect bank account details. The reason is simple – no matter how robust you make the infrastructure, if incorrect account details are entered – there is little a bank can do. 

Below, we have shared the percentage of failures due to incorrect payee details against the total number of failures.

Failures Due To Incorrect Details

Payments Failure Rate due to Incorrect Details

RBI or NPCI does not release failure rates across channels. So, at Cashfree, we decided to look into our own data and present our findings. This data is from processing more than 2 lakh payouts a day. The graph below shows failure rates across channels.

These incorrect details can range from – 

  • Incorrect account number
  • Incorrect IFSC number
  • Incorrect MPin
  • Incorrect format 
  • Incorrect account holder name
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Failures Due to Banking Infrastructure

No matter how robust the banking infrastructure is, it’s bound to have a few cracks here and there. Although technology has made our lives immensely comfortable, it still needs a bit of maintenance and monitoring, especially when it comes to banking and finance. Due to this reason, there are times when banking infrastructures fail, and as a result, monetary transactions take a hit.

In fact, banking infrastructure issues contribute to 30% of overall transaction failure across India.

Failure Due to Account Irregularity

At times, the account to which the money is being transferred might be blocked, might not accept payments, or simply does not exist. This also leads to failure in transactions and can be a headache for a lot of businesses.

Failure Due to IMPS Network

You might think that all the banks in India are a part of the IMPS network. Unfortunately, this isn’t true. As a matter of fact, a lot of banks are not yet a part of the network. More than 30% of transactions dug out from our data bank show that these transactions have failed because merchants assume that the customer’s bank is a part of the IMPS network.

Top Bank Transfer Failure Reasons - Payments

What Happens to the Payer’s Account during these Failures?

Ever wonder how at times when a payment fails, your bank account still shows a deduction, and the money comes back into your account after 3-5 days? And then, at other times, payments failure doesn’t deduct money from your account. Why is there an inconsistency?

To understand where payers can see a deduction and where they can’t, you can refer to the table below:

Failure ReasonPayer’s Bank Account Debited?
Originating bank server unresponsiveNo. The server captured details but is not able to connect with NPCI, so the account is not debited. 
Destination bank server unresponsiveYes
NPCI unresponsiveYes
Originating bank server overloadMaybe debited. In case of debit, the reversal takes up to 3 working days.
Destination bank not part of IMPS networkNo
Wrong payee account name/IFSCFor NEFT, the account may be debited for some beneficiary banks, but this gets reversed in 1-2 hours.

IMPS transactions will go through since only account number and bank identity is checked from the IFSC.
Wrong payee account numberIf the account does not exist, the request will fail at the originating bank itself. Any amount, if debited, will be immediately credited back to the source account.
Incorrect file – Account detailsYes. The reversal will happen by the next working day.
Payee account blockedPayer will be debited, but the transaction will be reversed.

The time taken to reverse a failed transfer depends on the timeline of the bank and varies from bank to bank. Some banks reverse manually in batches, others do so automatically and thus faster.

Payments Success Rates of the Top Banks in India

We observed a variance amongst banks in IMPS success rates and brought up the best performing banks (we only covered banks that saw a minimum of 1000 transfers being attempted). For comparison, the success rates take into account the effects of Cashfree’s routing algorithm. The percentage increase in the success rate due to the algorithm is also shown.

Cashfree has integrated with all major banks to ensure a high success rate of payments transfers.

Top 10 Banks for Payments - Success Rate

In our next post, we will cover the improvement in banking technology, and how Cashfree is bettering these success numbers. Stay tuned for the final chapter of this 3-part blog.

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