The National Payments Corporation of India (NPCI), which regulates UPI transactions in India, has announced changes aimed at improving the chargeback process. These changes, set to take effect from February 15, focus on automating the acceptance and rejection of chargebacks, reducing manual intervention, and ensuring smoother dispute resolution.
What’s Changing?
Currently, when a chargeback is raised, it requires manual verification and processing by banks, leading to delays, errors, and potential penalties. NPCI is now automating the process by introducing a system where chargebacks will be automatically accepted or rejected based on Transaction Credit Confirmation (TCC) and return data provided by the beneficiary bank.
Under this new system:
- The beneficiary bank must raise a TCC or a return after the chargeback is initiated.
- Based on this, the system will automatically determine whether the chargeback should be accepted or rejected.
- This eliminates the need for banks to manually review every chargeback, making the process faster and more efficient.
This automation will be applied only to bulk chargeback processing and the Unified Dispute and Issue Resolution (UDIR) system. However, these changes will not be visible to customers through banking apps and will be handled internally by financial institutions.
What Are Chargebacks?
A chargeback occurs when a UPI transaction, initially deemed successful, is reversed by the issuing bank, acquiring bank, or NPCI before the recipient’s bank fully processes it. Chargebacks are typically initiated when there is a dispute regarding a transaction.
When Do Chargebacks Occur?
Chargebacks can be triggered under the following circumstances:
- Unrecognized Transactions – A customer does not recall or recognize a transaction on their account.
- Disputed Transactions – A customer raises a complaint about a payment with their bank.
- Non-Delivery of Goods/Services – A customer is charged for an item that was never delivered.
- Processing Errors – A transaction is processed twice due to a technical error.
- Duplicate Charges – A merchant accidentally charges a customer multiple times for the same purchase.
Chargeback vs. Refund: What’s the Difference?
Many people confuse chargebacks with refunds, but they are two distinct processes:
- A refund occurs when a customer directly requests the merchant or payment service provider (such as a upi app) to return their money.
- A chargeback, on the other hand, is initiated by the bank when a customer disputes a transaction, and the bank investigates before processing the reversal.
While refunds are a more straightforward process handled between the merchant and the customer, chargebacks involve multiple banks and regulatory processes, making them more complex.
Why Are These Changes Needed?
Currently, chargebacks can be initiated on the same day as the transaction, leading to multiple challenges:
- Banks often do not have enough time to verify and process returns before chargebacks are raised.
- Some banks mistakenly initiate refund requests without checking if a chargeback is already in process.
- In such cases, chargebacks are automatically accepted on a deemed approval basis, which can result in penalties from the Reserve Bank of India (RBI).
By introducing automated acceptance and rejection, NPCI aims to:
✅ Reduce the time taken to resolve disputes.
✅ Minimize errors caused by manual processing.
✅ Prevent unnecessary penalties due to mismanagement of chargebacks.
✅ Streamline the UPI ecosystem for both banks and customers.
How Will This Affect Customers?
For regular upi users, this change will not directly impact how they make payments or raise disputes. The improvements are being made behind the scenes to ensure that chargebacks are processed more efficiently.
- If a customer raises a dispute, their bank will still handle it as before.
- The difference is that banks will now have an automated system to decide whether the chargeback should be approved or rejected based on TCC and return data.
Final Thoughts
With upi being one of the most widely used digital payment systems in India, ensuring a smooth and error-free chargeback process is crucial. These new changes will help banks and payment providers handle disputes more effectively, ultimately enhancing trust in the UPI ecosystem.
As the February 15 implementation date approaches, banks and payment service providers will update their systems to comply with the new guidelines, ensuring a faster and more efficient chargeback resolution process for all stakeholders.