New UPI Rules for P2M Transactions to Take Effect from June 30 – What You Need to Know

NPCI Updates UPI Rules for Merchant Transactions to Reduce Complaints, Improve Experience!

The National Payments Corporation of India (NPCI) has issued a fresh circular introducing a key change in how peer-to-merchant (P2M) transactions are handled under the Unified Payments Interface (UPI) system—specifically when the merchant's bank and the acquiring payment service provider (PSP) are the same.

What’s New?
For such transactions, NPCI will now treat a “deemed acceptance” as a successful transaction. This status will be reflected online and passed along to the payment service providers in real-time. Importantly, no changes will be made to the back-end systems for third-party transactions that follow the existing "deemed approved" structure.

Why This Matters
The change aims to streamline the payment experience, reduce friction for customers, and cut down on transaction-related complaints. NPCI has advised all banks and PSPs to implement the necessary tech adjustments to support the new flow.

What Stays the Same?
Key operational processes like settlement rules, raw data files, adjustment reports, GST reporting, chargeback handling, and regulatory penalties from NPCI or the RBI remain unchanged. The online transaction switch will be the only area affected by the update.

Handling Failed Credits

If a merchant’s bank fails to credit the amount to the merchant after a successful response:

Scenario A: The beneficiary bank will initiate a credit adjustment, refund, or return (RET) for the transaction only after completing the necessary verifications. Since a successful response is sent to the Payment Service Provider (PSP) and subsequently to the merchant, it is likely that the merchant has already delivered goods or services to the customer. Therefore, processing a RET, credit adjustment, or refund without proper reconciliation or confirmation from the merchant may result in an out-of-funds situation.

Scenario B:If the credit adjustment/RET is not initiated, the merchant bank will retain the funds and credit them to the merchant in accordance with the applicable regulatory and legal framework.

Dispute Resolution
Turnaround time (TAT) for handling disputes and adjustments will follow the existing standard processes.

This move by NPCI is designed to make UPI smoother for merchants and customers alike-particularly in transactions where the merchant’s bank also acts as the acquiring PSP-by reducing backend delays and simplifying confirmation flows.