ICICI, PhonePe UPI Impasse Comes to a Close

Last week, ICICI bank started blocking UPI transactions from the @ybl virtual payment address (VPA) that is used by the PhonePe app from Flipkart, powered by Yes Bank. This of course runs contrary to the whole idea behind the UPI - it's supposed to be an interoperable layer that works between all banks, allowing for easy digital payments. Having banks block legitimate VPAs undermines the concept, and what's worse, ICICI did not offer any substantiative statement about the block either.

This might finally have been resolved, with the National Payments Corporation of India (NPCI) having asked both ICICI and Yes Bank to take steps to open transactions again. As we had speculated, the move to block @ybl VPAs does appear to have been related to Flipkart's implementation of UPI payments, which tried to funnel all users to sign up to PhonePe, instead of allowing customers to use any VPA. In the app, it was possible to enter your own VPA, but that was only through a non-intuitive process that involved multiple menus; while using PhonePe was easily done on the first screen itself. This was definitely problematic, but ICICI's decision to block all @ybl VPAs was even more of an issue; the former is opportunistic, but the latter entirely undermines the UPI.

The NPCI's statement addresses this, and stresses on interoperability. In it's statement, the NPCI says that ICICI Bank has been advised to open UPI transactions immediately, and that it has advised Yes Bank to adhere to "merchant on-boarding guidelines meticulously" - a key phrase to take note of.

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On Friday, people started complaining about not being able to use their ICICI accounts with PhonePe, and that's when the payments company's founder Sameer Nigam tweeted about what was going on. We independently verified this, by trying to use our ICICI accounts on PhonePe - the transactions were denied. ICICI was not, however, stopping UPI transactions on other VPAs; we tested it with the BHIM app and it worked just fine.

At the time, ICICI issued a statement mentioning security related concerns, an restrictive practices. However, it had not gone into any details. Now too, it stresses on interoperability, and not merchant on-boarding, as mentioned by the NPCI, but it is easy to read between the lines.

Here's ICICI's statement in full: "A certain non-banking application is following a restrictive practice of allowing only users of its own UPI handle to make payments on its App. This is a clear violation of UPI guidelines which mandate interoperability, wherein users enjoy the freedom to choose any UPI handle to make payments."

"NPCI has assured us in writing that this will get corrected very soon and the concerned App will allow interoperability. As soon as this is corrected, ICICI Bank will start allowing UPI transactions to resume on this App."

More about the ICICI-PhonePe block in this week's episode of Orbital, which you can subscribe to via iTunes or RSS, or just hit the play button below.