Parl Panel Flags PhonePe & Google Pay’s Dominance In UPI Space

A Parliamentary panel has flagged the dominance of foreign-owned fintech apps in the digital payments space. 

The Parliamentary Standing Committee on Communications and Information Technology, in a report tabled in the house on Thursday (February 8), directly trained guns at PhonePe and Google Pay and raised concerns over their large market share in the UPI space.

“The committee notes that fintech companies, apps and platforms such as PhonePe and Google Pay owned by foreign entities dominate the Indian fintech sector. The market share in terms of volume of key players of UPI Google pay and PhonePe was 36.39% and 46.91% respectively in October-November 2023,” the report noted.

The country’s bustling UPI market has traditionally seen two entities dominate the whole ecosystem, namely Walmart-owned PhonePe and Alphabet-backed Google Pay. Together, these two players cornered more than 80% of the total transactions processed on the payment network in 2023. 

Even between the two, PhonePe usually accounts for nearly half of the total UPI transactions logged every month. As per industry insiders, the market is expected to tilt further in favour of these two players as the RBI tightens its regulatory screws around Paytm, which is a distant third player in the market.

Meanwhile, the Parliamentary panel’s report also pitched for promoting indigenous players in the fintech sector. It also said that it will be more feasible for the RBI to regulate Indian fintech platforms as against overseeing foreign entities that are present in multiple jurisdictions. 

Citing its rationale, the panel said several fintech companies were being used to launder money and as such the Centre ought to focus on promotion of local Indian players in the fintech space.

The panel report comes days after reports surfaced that government officials were actively debating the idea of a 30% ceiling on the market share for UPI apps. The matter was reportedly on RBI’s post-election agenda list but the regulatory action on Paytm Payments brought back the proposal under the central bank’s spotlight.

However, this is not the first time that the authorities have explored the idea of capping UPI transactions. The idea was first proposed in November 2020 when the National Payments Corporation of India (NPCI) floated the idea of imposing a 30% market cap limit for third-party app providers (TPAPs).

The SOPs include warning the TPAP when it reaches 25% market share. Afterwards, the platform would receive another warning once it crosses the 27+% threshold, and eventually it would be barred from onboarding new customers once it crosses the 30% market cap.

At the outset, the proposal had an original deadline of January 2021 but the plan was shelved after UPI and digital payments received a major boost during the pandemic. As fintech platforms made a beeline to the NPCI for an extension, the payments body extended the deadline till December 2022. 

Eventually, the deadline was again pushed by two years to December 2024 in view of the “present usage and future potential of UPI, and other relevant factors”.

Curiously, top RBI officials have also, in the past, flagged the dominance of PhonePe and Google Pay in the digital payments ecosystem. In 2022, RBI deputy governor T Rabi Sankar said that the central bank was looking at addressing the duopoly of PhonePe and Google Pay in the UPI space. 

That said, UPI continues to clock record numbers. The payments infrastructure logged more than 1,220 Cr transactions worth INR 18.41 Lakh Cr in January 2024.

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