NPCI Extends UPI Market Share Deadline
The National Payments Corporation of India (NPCI) has announced a significant extension of the deadline for third-party applications like PhonePe and Google Pay to reduce their market share in the Unified Payments Interface (UPI). This decision comes as both platforms have seen their market shares rise to 48% and 37%, respectively. The NPCI’s move aims to foster a more competitive environment in the digital payments space, encouraging the growth of new players while addressing concerns about market dominance.
Background of the Market Share Cap
In November 2020, the NPCI implemented a cap on the market share of any single third-party app provider in UPI transactions. The goal was to limit any one provider to a maximum of 30% of total UPI transaction volumes by December 31, 2024. This cap was introduced in response to the moratorium on Yes Bank, which had a significant impact on PhonePe’s transaction volumes, causing a nearly 40% drop overnight. The NPCI aimed to mitigate the risks associated with a single-point failure in the digital payments ecosystem.
Since the introduction of this cap, PhonePe has actively partnered with various banks to enhance its UPI transaction processing capabilities. Despite these efforts, the market shares of PhonePe and Google Pay have continued to grow, largely due to challenges faced by other competitors like Paytm. Paytm has struggled to maintain its position following regulatory actions against Paytm Payments Bank, allowing PhonePe and Google Pay to capture a larger share of the market.
Implications of the Extension
The NPCI’s recent decision to extend the deadline for compliance with the market share cap by two years has sparked discussions within the industry. Vishwas Patel, chairman of the Payment Council of India (PCI), expressed support for this extension. He believes that the market will naturally resolve the issue of market share over time, as new UPI apps continue to emerge. Patel noted that while incumbents like PhonePe and Google Pay have a strong foothold, newer players such as Naavi, Cred, and WhatsApp Pay are gaining traction.
Despite the presence of multiple players in the UPI space, many have struggled to make a significant impact. This is primarily due to their reluctance to invest heavily in user acquisition, especially in a market where revenue generation is uncertain. In contrast, Google Pay and PhonePe have invested billions to attract users, solidifying their positions as market leaders.
Future of UPI and Market Dynamics
As the UPI ecosystem evolves, industry insiders are optimistic about its growth trajectory. The volume of UPI transactions has been steadily increasing, with reports indicating that UPI is on track to achieve a billion transactions per day. This growth is supported by the low operating cost structure of digital payments, which allows players to remain profitable even with minimal transaction fees imposed on large merchants. The NPCI’s Bhim app, initially launched during the demonetization period, has seen a decline in momentum. However, the NPCI has recently restructured the Bhim app as a separate division, with plans to promote it more aggressively. This strategic shift aims to revitalize the app’s presence in the competitive UPI landscape.
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