Explainer: Market Share Cap Rule For UPI Apps On Hold

It is being anticipated that it will take two to three years before the market share of a single Unified Payments Interface (UPI) app is limited to 30%.

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Sources in the know say that the National Payments Corporation of India (NPCI), after negotiations with all stakeholders, may choose to postpone the December 31, 2022 deadline by a few years. According to reports, NPCI is thinking about extending the deadline since it might not be possible to alter the dynamics of the current ecosystem, where two players¡ªPhonePe and Google Pay¡ªcontrol more than 80% of the market.

What is the 30% limit?

As stated in the SOPs provided by NPCI, this is how it would proceed. Any UPI app will be notified by NPCI if its market cap hits 25%. At 27% or above, it will receive a second alert and be required to show proof of the efforts it will take to stay inside the 30% limit.

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Any app that went above the 30% threshold would be prohibited from adding new users, which would prevent users from using the app to make payments. Additionally, consumers will need to be informed by the relevant UPI apps that they have exceeded the 30% restriction and that they will only be accessible when NPCI approves.

The workings of the 30% market cap were revealed by NPCI in March 2021, in accordance with a mandate, and it is claimed that the limit will be determined based on the total number of UPI transactions processed by a player over the previous three months, on a rolling basis.

What are the recent developments?

It is believed that NPCI is collaborating with ecosystem players like Paytm and WhatsApp to grow their market share in UPI. Additionally, work is being done on the upcoming UPI apps Slice, Tata Neu, and Bajaj Pay. In order to improve volume and fully interoperate mobile number-based payments, NPCI is releasing a mobile mapper tool for UPI. The number of users that each app onboards will eventually be used to enforce the market share cap.

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National Payments Corporation of India (NPCI), an umbrella organisation for operating retail payments and settlement systems in India, is an initiative of Reserve Bank of India (RBI) and Indian Banks¡¯ Association (IBA) under the provisions of the Payment and Settlement Systems Act, 2007, for creating a robust Payment & Settlement Infrastructure in India.

With 3 billion transactions and a volume share of over 47% in July, PhonePe is the top UPI app. Google Pay came in second with 2.13 billion transactions, accounting for about 34% of UPI volumes.

Pushback from the industry

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The policy's deadline, which was set for January 2021, was initially announced in November 2020. UPI benefited the most as contactless digital payments became more popular as the pandemic spread. As a result, NPCI was forced to extend the deadline by a year. ¡°PSP (payment service providers) and TPAP shall ensure that the total volume of transactions initiated through the TPAP shall not exceed 30% of the overall volume of transactions processed in UPI during the preceding three months (on a rolling basis),¡± the circular dated November 5, 2020 said.

In reality, UPI passed the INR 10 Lakh Cr mark in May 2022. Although NPCI has not yet disclosed the split by app, PhonePe and Google Pay are expected to dominate the market.

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The delay is definitely good news for these apps as these apps didn¡¯t intend to slow down. The businesses assert that they follow the interoperability guidelines.

Even NPCI officials thought it to be doubtful that NPCI will be able to impose the above mentioned restriction by January 2023 unless other firms like Paytm, Amazon Pay, WhatsApp Pay, Tata Neu or BHIM rise to the occasion and rapidly take the market.