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Why is NPCI limiting WhatsApp’s UPI userbase?

WhatsApp is now allowed to onboard 100 million UPI users

The National Payments Corporation of India (NPCI) on April 13 approved an additional 60 million users on UPI for WhatsApp, allowing the messaging platform to expand its UPI-based payment service from 40 million to 100 million users. This new limit should allow the Meta-owned platform to better tap into its 500 million user base and compete with other apps such as Google Pay and PhonePe, which currently dominate the UPI market.

Why is NPCI increasing WhatsApp’s UPI cap in a graded manner?

Ever since WhatsApp got approval for its UPI service in 2020, NPCI has been increasing the platform’s cap in a gradual manner. First, the platform was allowed to onboard only 20 million users. Then, in November 2021, this was increased to 40 million users. This is at odds with other UPI apps, which do not appear to have any cap on the number of users that can be onboarded. According to Economic Times, WhatsApp had in fact sought permission for UPI payments for all its users in India in one go without any cap.

Nikhil adds: So why is NPCI treating WhatsApp differently from other platforms, and what’s the rational basis for this graded process? Without a clear explanation from the NPCI, this appears to be an arbitrary approach, and once again highlights the fact that there needs to be an independent payments regulator that bring some transparency and clarity into some of the decisions that NPCI takes, especially given the importance of UPI.

What’s your take on it, dear reader? Leave a comment.

Here are some possible reasons why this might not have been granted:

  1. Competition concerns: The potential for dominance that WhatsApp has in the UPI ecosystem might be deterring NPCI. Even if just 20 percent of the platform’s 500 million monthly active users enrol in WhatsApp’s payment service, the platform has the potential to corner a good chunk of the UPI market posing competition concerns. But, ironically, the existing market is dominated by just two players. Google Pay and PhonePe have held a market share of over 80 percent for the last few years. If anything, allowing WhatsApp to enrol more users might reduce the dominance of these two platforms and create a more competitive market. NPCI tried to curb this dominance by mandating that no single app can constitute more than 30 percent of the total transaction volume, but since existing platforms have until the end of 2022 to comply with this mandate, PhonePe and Google Pay currently exceed this cap. That being said, this doesn’t appear to be a valid reason for WhatsApp to be stopped from being able to enable payments for all its users.
  2. Stress on banking infrastructure: Back in 2020, it was suggested that NPCI was restricting WhatsApp to 20 million users because the platform might otherwise create a huge load on the banking infrastructure, which was already stressed. While the UPI infrastructure has since improved, failed transactions are still a problem, and stress on the banking infrastructure might still be a concern for NPCI. But should a particular service be singled out for restrictions, just because banks aren’t able to get their act together?

MediaNama has reached out to NPCI and WhatsApp asking the following questions and will update this post once we receive a response:

  1. Do all UPI apps get approval for more users in a graded manner?
  2. If not, why is NPCI’s approval for WhatsApp following this approach?

Update (15 April, 8:20 am): Manesh Mahatme, Director-Payments, WhatsApp India, responded to MediaNama but did not directly address the queries posed. Here’s his statement in full:

“We welcome this approval and thank NPCI for the increase in our cap to 100 Million. Since our initial approval from NPCI, we have been working to deliver a simple, reliable and secure experience for WhatsApp users that we hope will accelerate adoption of UPI for the “next five hundred million” Indians. As part of this roadmap, we have planned significant investments in ‘payments on WhatsApp’ across India including – “India-first” features and focus on creating awareness and driving adoption among our users.

UPI has been an unquestioned success, and we believe there is an opportunity for UPI to have even greater impact for the country — especially in rural regions where digital and financial inclusion can significantly improve peoples’ lives. We believe that ‘payments on WhatsApp’ can be a key partner to NPCI and RBI as we all aim to scale adoption of UPI and financial inclusion to those most in need.”

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