Extension Of UPI Market Cap Deadline A Positive For PhonePe, Google Pay; Setback For Paytm

In a major relief to PhonePe and Google Pay, the National Payments Corporation of India (NPCI) on Friday extended the UPI market cap deadline. It cited UPI’s current usage and future potential, among other factors, for the deferral.

The market cap guidelines would have hurt PhonePe and Google Pay, two of the biggest UPI apps which together hold nearly 85% market share, the most. As a result, both of them were lobbying for extension of the deadline for implementation of the guidelines.

From a consumer’s point of view, implementation of the UPI market cap guidelines would have meant payment failures for several users on these apps. It would lead to many users flocking to alternate and less frequently used UPI apps such as Paytm, CRED, WhatsApp Pay and more.

For the uninitiated, the third-party application (TPAP) guidelines seek to cap individual apps’ UPI volume at 30%. 

Once this limit is touched by an app, the NPCI will not allow users to make payments through the app. Further, the UPI app will also have to inform users that it has exceeded the 30% limit and will only be available when the NPCI allows.

When implemented, here’s how it will work: If any UPI app reaches a market cap of 25%, it will receive an alert from the NPCI. At 27%+, it will receive a second alert and thereby will have to provide evidence of steps it will undertake to adhere to the 30% limit. 

However, following the extension, the new deadline to comply with the market cap guidelines is December 31, 2024.

A Setback For Paytm

UPI has grown to become the preferred digital payment channel over the years, with UPI apps like PhonePe, Google Pay and Paytm becoming household names. For the last one year, the trio have continued to be the top three apps (in that order) in terms of UPI transactions. 

In October 2022, PhonePe recorded 345.29 Cr transactions worth INR 5.94 Lakh Cr (amassing 49% of market share), while Google Pay recorded 249.64 Cr transactions worth INR 4.21 Lakh Cr (with a 35% market share). Paytm was at the third position with 11% share in the UPI market. 

Being the third largest app with market share well below 30%, the implementation of UPI market cap guidelines was expected to help Paytm the most. Recently, the homegrown fintech startup also asserted that it believes market capping should be implemented as per the timeline. Consequently, the extension of the deadline is a setback for it.

Meanwhile, the move would cheer up PhonePe. Earlier, PhonePe CEO Sameer Nigam said that UPI’s no-cost feature means that users flock to the most easy-to-use platform. He said that the fintech startup has an organic market share of participants in the UPI industry which is unlikely to change ‘significantly’. 

“NPCI will have to keep extending the market cap indefinitely,” he reportedly said. “If I am playing by all the rules of interoperability, there is scant little I can do to reduce market share,” he told ET. 

The fintech giant had requested NPCI to defer the deadline by three years.

Emails sent to PhonePe, Google Pay and Paytm seeking their response on the extension of the market cap deadline did not elicit any response till the filing of the story.

Is A 30% Market Cap Needed Anymore?

The proposal to cap market cap has received mixed response so far. The only way that the duopoly of PhonePe and Google Pay will be broken is if other apps rise to the occasion. However, that has not been the case in the last year or so. 

Commencing on the guidelines, former BharatPe founder Ashneer Grover said on Twitter, “Market share cap of 30% [UPI] is the most unnatural thing to implement. Is it even needed? It was introduced to cap WhatsApp Pay [from] becoming 90% overnight – which is dead. There is no systemic risk. If Google Pay or PhonePe went down, customers will quickly switch to another PSP.”

WhatsApp’s payment feature accounts for only less than 0.5% share in the total UPI transactions every month. On the contrary, its chat feature has more than 475 Mn users in the country. Despite the NPCI permitting the Meta-owned platform to scale the payments feature to 100 Mn users, WhatsApp has not been able to touch that number. 

While the implementation of the guidelines has been extended for now, it remains to be seen if the NPCI actually goes ahead with it or if the opposition to the market cap proposal results in it abandoning it altogether.

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