Industry keenly awaiting implementation of 30% UPI market share cap by NPCI

With extended deadline for 30 per cent UPI market ceiling by NPCI approaching, industry players are keenly awaiting the implementation and measures to achieve the cap from January 1.

The National Payments Corporation of India (NPCI) in December 2022 extended the deadline for third-party UPI players to meet its 30 per cent volume cap in digital payment transactions by two years to end December 2024.

Presently, third-party app providers (TPAP) like Google Pay and Walmart's PhonePe have a majority 85 per cent share in UPI-based transactions. NPCI runs the Unified Payments Interface (UPI) used for real-time payments between peers or at merchants' end while making purchases. According to sources, NPCI would spell out ways to implement the 30 per cent UPI market ceiling in a bid to minimise concentration risk.

One option would be to stop on-boarding of new customers for those who have higher than 30 per cent market shares in UPI transaction, sources said, adding it can be done in a phased manner so that there is no impact on the users. NPCI is expected to give some clarity on this in the next few months much before the deadline so as to avoid any disruption, sources added.

According to a senior banker, "The risk of a single point of failure remains elevated when the two players (Google Pay and Phone Pe) dominate such a high volume of activity, resulting in disorderly services and disruption in services." Speaking on UPI concentration Sanjiv Sharma, a senior lawyer specialising in the competition laws, said, large players invest heavily by predatory pricing in order to gain market majority.

"Once monopoly is obtained then these players monetize using its services to gain back its investments with heavy returns. This overall 'price game' reduces the space of innovation and makes it challenging for smaller players to deliver services at a competitive perspective," Sharma said.

"Taking into account the present usage and future potential of UPI, and other relevant factors, the timelines for compliance of existing TPAPs who are exceeding the volume cap, is extended by two years i.E. Till December 31, 2024 to comply with the volume cap," NPCI had said in a circular.

NPCI had further said that in view of significant potential of digital payments and the need for multi-fold penetration from its current state, it is imperative that other existing and new players (banks and non-banks) shall scale up their consumer outreach for the growth of UPI and achieve overall market equilibrium.