Mobile manufacturers and the Indian Cellular Association – an industry group representing mobile manufacturers – have been urged to pre-load NPCI’s BHIM application, in a meeting with the secretaries of MEITY and Department of Telecom, as per a tweet from Ajay Kumar, Additional Secretary of MEITY. The meeting, according to the tweet, took place on 11th of September.

A few points on this development:

1. Preloading is a standard, age-old, industry practice, based on mutual agreements between handset manufacturers and app developers. Nokia used to do pre-loading deals in pre-iPhone, pre-Android days. Many of the Indian OEMs, when they first launched with barely functional phones (so low on memory that they’d keep crashing) did a lot of preloading deals too.

“Urge” is probably a polite way of putting it, but really, it’s doubtful that the handset manufacturers will now not-preload the BHIM app.

2. Addresses some of the usage problems but not all: The decision to use an app involves multiple stages of thinking: awareness, discovery, acquisition (download), signing-up and usage. Preloading addresses the discovery and acquisition part of this problem, but doesn’t address awareness, signing-up and usage. Most importantly, it doesn’t guarantee usage.

3. Government backed competitive advantage for BHIM will hurt UPI: forced (or is it “urged”?) preloading means that apps that compete with BHIM, including PhonePe and Chillr, and all the UPI apps from all the banks, will be at a competitive disadvantage to BHIM.

Growth in UPI, which is basically a money transfer system, will come having multiple partners and apps using it. There need to be hundreds and thousands of UPI apps, each trying to acquire a user base, and compete on delivering a better product and service for customers. For this, there needs to be a level playing field for all UPI apps. A specific series of incentives for BHIM (covered here), and a regulatory “urging” for preloading, creates an unlevel playing field, and a disincentive for anyone to invest in the UPI ecosystem. NPCI runs BHIM, and also runs UPI. If it’s pushing BHIM instead of merely being an enabler for apps, UPI will fail.

This chart below is indicative of a problem, because UPI is still tiny compared to overall digital transactions. Market consolidation is natural and expected, but consolidation without growth is indicative of impending market failure.

The banks, as we already know, are incapable of pushing digital payments: you’ve seen that with the relative failure of IMPS when compared with mobile wallets.

For UPI to grow, there need the government to stop promoting BHIM, and for it to promote digital payments as a whole, or UPI as a system. There needs to be incentive for everyone to grow, not just for BHIM.

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