The National Payments Corporation of India (NPCI) will come out with guidelines for new and existing players to comply with the market share cap guidelines on UPI in the next two to three months, a senior industry expert told MediaNama. The NPCI will consult the industry players on the best method to implement the market share cap policy with the aim of ensuring consumers’ choice is not hurt, this person said on the condition of anonymity. “The NPCI will also consider publishing UPI data for each app as part of this policy,” this expert added.
On Thursday, the NPCI introduced a market share cap of 30% on third-party apps on the Unified Payments Interface (UPI) network. “In view of the recent growth in UPI transaction volumes, NPCI has analyzed the risks in the UPI ecosystem,” it said in its circular, adding that the market share cap has been introduced in order to “address the risks and protect the UPI ecosystem.”
In October 2020, UPI platforms processed 2.07 billion transactions worth over ₹3.86 lakh crore, which is around 80% and 100% higher in volume and value terms, respectively, than the same period last year. Between April and October 2020, over 11.54 billion transactions worth ₹19.35 lakh crore took place on UPI, around 89% and 76% higher in volume and value terms, respectively, compared to the same period last year.
What the NPCI circular says
According to NPCI’s circular, Payment Service Providers and the third-party apps will have to ensure that the total volumes flowing through the apps do not exceed 30% of the overall transactions processed on UPI during the preceding three months, on a rolling basis. The third-party apps will have to implement the cap on transaction volumes from January 1, 2021 onward. Apps that exceed the cap at present will have a two year period to comply with market share cap in a phased manner, the NPCI said.
While the UPI payment platform is available on 21 standalone apps, the ecosystem is dominated by two players Google Pay and PhonePe who together command close to 80% market share, the industry expert quoted above said. “The NPCI operates with the principle that the clearing house has to survive and if we assume that if one UPI app goes to 70% market share, if there is a breach or malfunction, the entire UPI payments service will go down,” this person said explaining NPCI’s decision to introduce the cap on market share.
Third-party apps sit on top of a banks’ infrastructure and provide users with an interface to receive and send money through the UPI platform, which is owned and managed by the NPCI.
“As of now there are no immediate implications for the top UPI players, but the bigger story here is WhatsApp Pay’s launch which will upend the current market share which is dominated by Google Pay and PhonePe. WhatsApp Pay’s launch in India will change the market shares of the incumbent companies and if they have high volumes of transactions it could create a system risk issue,” a second payments industry expert said on the condition of anonymity.
According to Sajith Sivanandan, business head at Google Pay and Next Billion User initiatives for India, digital payments in India is still in its infancy and any interventions at this point should be made with a view to accelerate consumer choice and innovation. “A choice based and open model is key to drive this momentum. This announcement has come as a surprise and has implications for hundreds of millions of users who use UPI for their daily payments and could impact the further adoption of UPI and the end goal of financial inclusion,” he said in a statement.
How companies can implement the caps
While there is no clear method for apps to implement the 30% cap from the NPCI as of now, here are some ways it can be implemented:
- Place daily, hourly limits on number and value of UPI transactions for each customer
- Place a monthly transaction limit on each customer
- Restrict the use of UPI to only specific use-cases
- Push users to use multiple UPI apps
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