UPI Apps | NPCI : UPI apps may get more time to adhere to 30% cap on market share

Bengaluru: The National Payments Corporation of India (NPCI), which enables the country’s digital payment and settlement systems, may extend the deadline for its contentious mandate requiring payment apps to hold no more than 30% market share, people aware of the development told ET. The current deadline is January 2023.

“There is no choice but to consider this actively. They (NPCI) are wary of disrupting users and in effect slowing down UPI growth,” said a person aware of the discussions.

According to sources, NPCI fears market disruption for consumers at a time when third-party payment providers such as PhonePe and Google Pay still hold about 47% and 34% market share, respectively, as of April this year. “New entrants like WhatsApp Pay are yet to make a significant dent in the market in terms of cornering market share,” said the person aware of the current discussions.

Pushback from multiple UPI apps

An email sent to NPCI did not elicit any response on the matter till the time of going to press on Sunday. Top third-party UPI apps like PhonePe and Google Pay didn’t respond to ET’s queries on the matter.

NPCI’s mandate has seen concerted pushback from multiple UPI apps including the market leaders PhonePe and Google Pay. Two other major players

and Amazon Pay are yet to break the dominance of the leaders.

Meta-owned WhatsApp Pay, which has now been allowed to scale its user base to 100 million consumers, saw 2.5 million transactions in April compared with 2.6 billion on PhonePe.

Sources in the know said that at least one of the biggest UPI apps has told its key stakeholders that the market cap mandate is unlikely to be implemented at the end of 2022, and that it is therefore not slowing down on plans to expand its user base.

‘While there is still some time (six months) to go before the end of the deadline but unless a player dramatically rises to disrupt the market, a delay in the said rule is being considered,” sources added.

Tata Digital is also among the new entrants on UPI,
as first reported by ET.

UPI has been one of the biggest beneficiaries from the tailwinds provided to digital payments with the onset of the covid-pandemic, as consumers shunned cash amidst fear of transmission of the virus. Transactions on the UPI network have grown almost six-fold since May 2020, when overall volumes on the UPI infrastructure crossed 1 billion for the first time, with total volumes touching 5.95 billion, last month.

Phased compliance
In November 2020, NPCI first officially announced that it will issue a cap of 30% on transaction volume clocked by a player starting 2021. Players will have a period of two years starting January 2021, to comply with the cap mandate in a phased manner, it had said.

By March 2021, the payments infrastructure provider set out operational guidelines for digital payment players to limit their share. It said that the market cap of 30% will be solely calculated on the basis of total volume of transactions processed on UPI during the preceding three months by a player, on a rolling basis.

PhonePe cofounder and CEO Sameer Nigam has previously said that cap on UPI market share is not a good idea. He told ET in September last year that he was not worried about cutting back market share. “If I am playing by all the rules of interoperability, there is scant little I can do to reduce market share. I would like to believe that this is now user preference starting to play out based on success rate (of transactions) and acceptance.” Google Pay had also expressed apprehension about the market share in a statement to the media previously.

Can WhatsApp Pay disrupt market?

WhatsApp Pay’s entry into UPI has been a matter of much industry concern with Paytm founder Vijay Shekhar Sharma having kicked up a storm over the Facebook-owned firm’s entry on the e-payment network way back in 2018. The most recent development of NPCI allowing WhatsApp to scale its user base to 100 million here has put the spotlight on the firm again. Since the approval in late April, WhatsApp Pay is offering cashbacks to existing users to nudge them to make more transactions using its payments service and inviting new users.

“They (WhatsApp Pay) are trying to get new users and the frequency of cashback as a hook has increased. But it is yet to surpass its previous user base limit of 40 million,” a person aware of the matter said. He added the slower than expected disruption from new players is also a factor that’s added to the current thinking of delaying the implementation of market share cap.

In response to ET’s queries about cashbacks and discounts, a representative for WhatsApp said the company is “running a campaign offering cashback incentives in a phased manner to our users as a way to unlock the potential of payments on WhatsApp… We’ll continue to drive awareness of payments on WhatsApp as part of our broader efforts to bring the next 500 million Indians onto the digital payments ecosystem”.

However, according to industry experts, the lack of merchant-payment use-cases such as bill payments is also one of the major reasons why the messaging service hasn’t been able to make a big dent in the UPI landscape.

As of last month, peer-to-merchant (P2M) payments contributed to roughly 40% of the overall UPI volumes.