Design PhonePe's UPI Payment Switch

Problem

Design the UPI payment switch — the core routing layer that processes UPI transactions between payer PSP, NPCI, and payee PSP.

Requirements

Functional:

• Initiate, route, and confirm UPI transactions
• Handle collect and pay flows
• Callback / webhook to merchant
• Transaction history query

Non-functional:

• 1M TPS at peak (festival sales)
• p99 latency < 1.5s (NPCI mandate)
• Zero fund loss — atomicity across ledger entries
• Regulatory audit log retention: 7 years

Discussion points

1. NPCI protocol constraints and timeouts
2. Idempotency across retries with bank failures
3. Double-entry ledger design
4. Saga pattern for distributed transaction across PSPs
5. Horizontal scaling of stateful switch nodes