30% UPI Cap Unlikely To Be Implemented Soon: Report

Implementation of a 30% market share cap on the Unified Payments Interface (UPI) apps is unlikely to come into effect with just a few months left before the deadline.

As per an ET report, industry experts have indicated that several new entrants to the UPI market have been informally told that the 30% market share cap might not be implemented. Consequently, these companies are revising their growth and investment strategies.

New entrants had previously held off on major UPI investments and are awaiting clarity on the market share rule. The government is yet to officially inform the National Payments Corporation of India (NPCI) of its stance on the proposed cap.

India launched UPI in 2016, prohibiting fees to boost digital transactions and reduce cash use. As a result, banks and companies like WhatsApp and Amazon Pay have been less aggressive in promoting UPI, raising concerns about market concentration. While PhonePe and Google Pay don’t earn directly from UPI, they use their customer base to sell services like loans and insurance. 

The NPCI first proposed a 30% market cap for third-party app providers in November 2020, with the deadline extended from December 2022 to December 2024.

In 2022, a 30% market share cap for UPI payment apps was proposed to limit the dominance of major players like Google Pay and PhonePe. Existing players were given two years to comply with the cap, a move intended to foster competition and encourage the entry of new players into the UPI ecosystem.

However, in May it was reported that the NPCI plans to extend the year-end deadline by up to two years to cap the market share of any company processing payments via UPI at 30%. 

“We’ve been told in multiple conversations that the 30% cap isn’t happening, so we’re adjusting our plans,” said a senior executive at a smaller UPI app. The executive added that recent entrants won’t gain much ground due to the dominance of Google Pay and PhonePe, according to ET.

Meanwhile, UPI transactions rose 3.95% month-on-month (MoM) to 14.44 Bn in July from 13.89 Bn in the previous month. On a year-on-year (YoY) basis, the transaction count surged 49%.

In addition, the UPI transaction volume in July stood at INR 20.64 Lakh Cr, 2.8 % higher than June’s INR 20.07 Lakh Cr. On a year-on-year (YoY) basis, the transaction volume surged 35%.

PhonePe and Google Pay continued to dominate the UPI market in July, matching the overall growth trend. However, Paytm, the third-largest player, saw a slight decline. According to NPCI data, PhonePe recorded 6.98 Bn transactions worth INR 10.28 Lakh crore, followed by Google Pay with 5.34 billion transactions worth INR 7.35 Lakh Cr, and Paytm with 1.12 Bn transactions worth INR 1.23 Lakh Cr.