NPCI may defer market cap deadline for UPI payment platforms by 2 years

Eight months left for the implementation deadline, the National Payments Corporation of India (NCPI) may be favouring growth over concerns about market domination

The National Payments Corporation of India (NPCI), which oversees the Unified Payments Interface (UPI), is set to defer implementing caps on market share for digital payment platforms by two years, according to Reuters.

With only eight months left for the implementation deadline, NCPI appears to be favouring growth over concerns about market concentration.

The move would benefit India's top digital payment platforms, PhonePe and Google Pay, which together processed a total of 11.5 billion UPI transactions in April.

As of April, Phonepe's UPI market share surged to 48-49 per cent following the Paytm crisis in late January this year. Google Pay had a 38 per cent market share in April.

Introduced in 2016, UPI does not allow companies in India to charge for the instant digital payments service. This payment system aimed to boost online transactions and reduce cash usage.

However, the lack of revenue generation has deterred players like Meta-owned WhatsApp and Amazon Pay from aggressively promoting UPI-based payments, raising concerns about market concentration, Reuters added.

Despite the inability to earn directly from payments, PhonePe and Google Pay have leveraged their UPI customer base to offer additional services like loans and insurance.

NPCI had initially announced a 30 per cent market share cap in 2020. The initial deadline was set for two years – to the end of 2024. However, another extension is likely, as reducing market shares for PhonePe and Google Pay without hindering UPI payments growth is challenging.

Introducing sudden market caps and limiting users on UPI apps may also cause disruptions among citizens and merchants, due to the payment system's popularity in India.

NPCI had anticipated increased competition with smaller payment platforms entering the market, but this has unfortunately not been the case.

Meanwhile, Paytm, holding the third-highest share, experienced a decline in processed payments following regulatory restrictions.

Payment firms have urged NPCI to remove the market-share cap and permit charges for UPI payments to foster competition. However, NPCI appears hesitant to eliminate the cap, favouring continued deliberation on the matter.

The Reserve Bank of India recently convened with industry executives to explore strategies for expanding the UPI user base, which stood at approximately 300 million users and 50 million merchants as of late last year, based on the latest available data.