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PhonePe breaks UPI’s no-fee streak by introducing processing fee for mobile recharges

PhonePe’s recent decision may be an experiment to achieve compliance with the NPCI guidelines on market share.

PhonePe, Paytm, digital payments

PhonePe will now charge a processing fee of Rs. 1 for UPI-based mobile recharges above Rs. 50, while recharges above Rs. 100 will incur a charge of Rs. 2, the Indian Express has reported. This is the first time a payment service is charging a fee on UPI-based payments.

According to data from the National Payments Corporation of India (NPCI), PhonePe remains the market leader in UPI transactions with a market share of more than 40%. This is far higher than the cap set by NPCI, which is 30%. 

The transaction fee could be seen as PhonePe’s attempt to come under NPCI’s market cap by giving up some market share. The company, however, refutes this narrative, claiming that the new fee “has nothing to with the UPI market cap, or UPI payments. The platform fees is being applied for doing mobile recharges using the PhonePe app.”

Explaining the move, a PhonePe spokesperson said:

We are running an experiment and for a small set of users charging a fee for the usage of the platform ranging between Re 1 and Rs 2. Recharges of denomination Rs 50 and below are not being charged. This is instrument agnostic – across credit cards, Debit cards, wallet and UPI. – PhonePe spokesperson

Why did NPCI put a cap on market share for UPI transactions?

Payment services will have to ensure that their total volumes of UPI transactions should not exceed 30% of the total volume of UPI transactions, the NPCI said in a circular in November last year. The market cap is meant to “address the risks and protect the UPI ecosystem,” NPCI said in its circular.

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Explaining the move, a senior industry expert told MediaNama,

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

The 30% cap came into effect in January 2021. Companies that exceed the cap, which currently includes PhonePe and Google Pay, will have a period of 2 years to comply with the market share cap in a phased manner, NPCI said.

In a standard operating procedure released in March this year, the NPCI announced the following guidelines for payment providers exceeding the 30% market cap:

  1. Such apps must stop onboarding new customers
  2. NPCI may offer an exemption to such apps to ensure smooth implementation
  3. NPCI is authorized to penalize companies that fail to comply with the market cap provision

Update (26 October, 09:58 am): Responses from PhonePe spokesperson were added.

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Figuring out subscriptions and growth at MediaNama. Email: nishant@medianama.com

MediaNama’s mission is to help build a digital ecosystem which is open, fair, global and competitive.

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