NPCI Dials Govt, Industry Stakeholders On Timeline For UPI Market Share Cap

The National Payments Corporation of India (NPCI) is reportedly talking with the government and industry stakeholders about delaying the implementation of a market share cap on players in the UPI ecosystem and the implications of the said delay.

The NPCI has been exploring ways to implement a market share cap on UPI players, with reports suggesting that the payments body will implement a 30% market share limit for all payment companies. 

While the plan was notified in November 2020, apps exceeding the market share cap of 30% on December 31, 2020, were given a period of two years to comply with the new rules. However, PhonePe has put in a formal request to defer the January 2023 deadline by at least three years, per an ET report. 

The report added that Google Pay also contacted the NPCI regarding an extension.

The sources added that some players have also requested to delay the implementation timeline by as much as five years. The requests have prompted NPCI to reach out to the government to understand the implications of the deferral.

Recently, comments on the matter also came from the Reserve Bank of India (RBI), giving the issue of the UPI market share cap more gravity. At an event, RBI Deputy Governor T Rabi Sankar said that the reserve bank is looking to address the duopoly of Google Pay and PhonePe.

Per NPCI data for August 2022, PhonePe and Google Pay held around 83.85% market share, with the former accounting for almost half of the value of UPI transactions that happened in the country last month.

Spokespeople for both Google Pay and PhonePe were cited as stating that a UPI market share cap will limit the innovation that is taking place in the ecosystem. 

While Google Pay said it remains committed to being compliant with the laws, PhonePe added that a market cap would be detrimental to financial inclusion. It is prudent to mention that food delivery majors Swiggy and Zomato are also looking to enter the UPI ecosystem as third-party app providers (TPAPs).

While it might take months for them to roll out that feature, conversations are going on with multiple banks, sources cited in the report said.

UPI Apps Facing Regulatory Pressure

Apart from the TPAP guidelines that are still said to be in progress and scheduled to come into force by January 2023, UPI apps are still struggling to turn a profit because of the absence of the merchant discount rate (MDR). Without MDR, the UPI apps can’t monetise the infrastructure installed to facilitate digital payments.

Therefore, talks emerged earlier this year to introduce a small MDR to UPI payments, to the tune of 0.5% of the transaction value. However, the move met with fierce opposition from the users. Seeing the same, Union Finance Minister Nirmala Sitharaman stated that there were no plans to charge MDR on UPI.

If the TPAP guidelines come into effect on their scheduled time, it could lead to market leaders PhonePe and Google Pay losing a significant chunk of their customers after the UPI market share cap gets implemented.