Why Are NPCI And UPI Companies Not On The Same Page On Limiting Market Share?

As Unified Payments Interface (UPI) becomes more popular in India as a mode of payment, several new players are waiting in the aisles, planning their foray into the domain. Food delivery apps Swiggy and Zomato are amongst those reportedly preparing to enter UPI as third-party payment apps. 

India’s digital revolution has primarily driven UPI’s success story. It began gaining currency after demonetisation in 2016, which stifled cash availability in the country, pushing people to adopt digital modes of payment. Its growth was also aided by cheap data availability, especially the Reliance Jio network rollout in 2015. 

However, the pandemic gave UPI a major thrust, making it the most favoured mode of payment. This is reflected in its growth trajectory over the years. 

A year after its launch in 2016, the total number of UPI payments was 6 per cent compared to 36 per cent of card payments. In FY 2021, UPI occupied 63 per cent of total payments while that of cards shrunk to 9 per cent. For August this year, the digital transaction was at 6.5 billion, according to National Payments Corporation of India (NPCI) data.

However, a recent NPCI deadline has kindled a debate over the UPI market share between the players in the sector. 

Why Does NPCI Have A Deadline?

The NPCI wanted to limit the market share of UPI players to 30 per cent, effective from the quarter beginning in January 2021.

However, existing and dominant players like PhonePe and Google Pay wanted more time to adhere to the deadline and sought an extension till January 2023. 

The Economic Times reported that incumbent players are pushing for an extension of the deadline by three to five years to limit market share.

The demand for pushing the deadline did not go down well with the NCPI. It is now in discussions with various stakeholders and the government on the implications of a delay.

Incidentally, the NPCI had put in place the clause to limit market share to ensure parity in the country’s digital payments industry. Its guidelines would have given incumbents with dominant marketshare a two-year compliance window to reduce friction for customers.

PhonePe and Google Pay, which had 40 per cent market share respectively the end of December 2020, would have been required to go slow on new customer acquisition and bring down transaction volume to the prescribed limits by the end of this year. 

Why Are Companies Seeking Extension?

According to The Economic Times report, PhonePe has formally written to the NPCI seeking an extension of the deadline. The report says that Google Pay has held deliberations seeking an extension. 

The NPCI’s consultations with various stakeholders come when Swiggy and Zomato are also reportedly planning to enter UPI as a third-party payments app. 

Swiggy and Zomato already have wallets, and if approved, they now would be able to provide UPI services as third-party apps for payments. The food delivery apps are reportedly already in consultation with banks to roll out the service within a few months. 

Limiting of market cap, industry stakeholders feel, might curb the organic growth of UPI. In August, PhonePe had 3.14 billion UPI transactions and a market share of 48 per cent while Google Pay did 2.2 billion transactions and had a market share of 34 per cent. 

The other players in the UPI business include WhatsApp Pay with less than 1 per cent market share in August and only 6.72 million transactions. Tata Neu joined recently and hasn’t yet had any noticeable transactions.

The NPCI has also had informal deliberations on the matter with the Reserve Bank of India on whether extending the deadline would be a viable option.