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In a major relief to payment firms like PhonePe and Google Pay, the National Payments Corporation of India (NPCI) on Friday extended the volume cap deadline for third-party application providers (TPAPS) by two years, until December 31, 2024.
“Taking into account the present usage and future potential of Unified Payments Interface (UPI) and other relevant factors, the timelines for compliance of existing TPAPs which are exceeding the volume cap are extended by two years i.e. until December 31, 2024, to comply with the volume cap,” said NPCI in a circular.
This has been done to preserve growth of NPCI’s flagship payments platform – UPI, which is touching record highs every month, in terms of both volume and value of transactions.
“The players involved had asked for a five-year extension of the market cap deadline and a review of the decision to impose market caps, but as of now the decision stays, ” said a person aware of the development.
In November 2020, NPCI came up with a directive capping the share of transactions a TPAP could process at 30 per cent of the volume of transactions handled on UPI, effective January 1, 2021, which was to be calculated on the basis of the volume of transactions processed during the preceding three months (on a rolling basis). However, it gave the existing TPAPs, such as PhonePe and Google Pay, which exceed the desired market cap, two additional years, starting January 2023, to comply with the directive.
According to the latest data released by NPCI, PhonePe processed over 47.26 per cent of the transactions done through UPI in October. Google Pay processed about 34 per cent of transactions through the UPI. Both these players have a combined market share of over 81 per cent in volume terms of total transactions processed on UPI.
Sameer Nigam, CEO & Founder, PhonePe “We are obviously relieved to see the UPI market share cap get extended by two years. Even when the market share cap was announced in Nov 2020, we had repeatedly protested the idea because there is no way for any market participant to reduce their own market share without actively denying service to the end customer. At PhonePe’s scale, to reduce our UPI market share to 30 per cent we would be forced to deny UPI payment services to crores of Indians, and that would be totally detrimental to the incredible Indian digital payments growth story over recent years.
The new NPCI circular itself acknowledges that the burden is on other existing and new UPI players to ínvest more time, effort & money to increase their own UPI market share. Failing that, the organic market share of participants in the UPI industry will not change significantly, and NPCI will have to keep extending the market cap indefinitely. This constant uncertainty is not helpful for anyone in the entire UPI ecosystem – incumbents or challengers.”
The volume cap directive was aimed at reducing the risk of concentration in the system and potentially curbing the dominance of two large players while ensuring other players also get a chance to grow. However, growth in the market share of these two players, especially PhonePe, notwithstanding a large base, indicates customer preference and convenience perhaps driving volumes for these digital payments firms.
NPCI was banking on players, such as WhatsApp, Paytm, Tata Neu, and a few others, to scale up substantially but so far, they have not managed to do so. With the exponential growth being witnessed on UPI and with features such as credit card linkage on UPI, a large number of players have evinced interest to become TPAP.
“…it is imperative that other existing and new players (banks and non-banks) scale up their consumer outreach for the growth of UPI and achieve overall market equilibrium”, NPCI said in the circular.
“New players are coming in, such as Slice, Zomato, so the idea is to organically balance the market share of the players. Existing players will also get the opportunity to scale up their market share. PhonePe and Google Pay are very popular apps because of the investments they have made and the tech they have built”, said the source quoted above.
While NPCI does not want to hamper UPI’s growth by restricting any player from processing transactions because, eventually, it is consumers who decide which platform they want to use, it wants to address the issue of concentration risk as the two players have cornered a significant market share in UPI, the source added.
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