Industry is eagerly awaiting implementation of 30% UPI market share cap by NPCI

As the extended deadline for a UPI market cap of 30 percent by NPCI approaches, industry players are eagerly awaiting the implementation and measures to achieve the cap from January 1.

The National Payments Corporation of India (NPCI) in December 2022 extended the deadline for third-party UPI players to meet the 30 percent volume limit in digital payment transactions by two years to the end of December 2024.

Currently, third-party app providers (TPAP) such as Google Pay and Walmart’s PhonePe have a majority share of 85 percent in UPI-based transactions. NPCI manages the Unified Payments Interface (UPI) used for real-time payments between peers or on the merchant side while making purchases.

According to sources, NPCI would be working out ways to implement the 30 percent UPI market cap in a bid to minimize concentration risk.

One option would be to stop onboarding new customers for those who have more than 30 percent market share in the UPI transaction, sources said. Moreover, this can be done in phases so that there is no impact on the users.

NPCI is expected to provide some clarity on this in the coming months, well ahead of the deadline, to avoid disruption, sources said.

According to a senior banker, “The risk of a single point of failure remains high when the two players (Google Pay and Phone Pe) dominate such a large volume of activity, resulting in disorganization and service disruption.”

Speaking about UPI concentration, Sanjiv Sharma, a senior lawyer specializing in competition laws, said major players are investing heavily through predatory pricing to gain a majority in the market.

“Once the monopoly is established, these players make money using their services to recoup their investments with high returns. This blanket ‘price game’ reduces the space for innovation and makes it challenging for smaller players to provide services from a competitive perspective,” said Sharma. .

“Taking into account the current usage and future potential of UPI and other relevant factors, the compliance timelines for existing TPAPs that exceed the volume limit are extended by two years, i.e. until December 31, 2024, to comply with the volume limit . NPCI had said in a circular.

NPCI has further said that considering the significant potential of digital payments and the need for multiple penetration over the current situation, it is imperative that other existing and new players (banks and non-banks) will expand their consumer reach for the future. growth of the UPI and achieving an overall market equilibrium.