On Thursday, the National Payments Council on India put in place a 30% cap on the UPI transaction volumes that can be processed by one third-party app provider. This means that of all the UPI transactions that are processed by apps such as Google Pay, PhonePe, Amazon Pay and others, a single player cannot process more than 30% of the total volume of transactions in the previous three months.
The third-party app providers have two years to comply with this circular in a phased manner.
The announcement came as a surprise not just to the third-party app providers, as it could impact end-consumers in terms of the number of transactions they could do from the app of their choice.
Google Pay, in a statement to Livemint, expressed surprise and said that this new market share cap is likely to affect the adoption of UPI, especially at a time when digital payments is still in its infancy in the country and is likely to curb consumer choice.
â€śDigital payments in India is still in its infancy, and any interventions at this point should be made with a view to accelerating consumer choice and innovation. A choice-based and open model is key to drive this momentum. This announcement has come as a surprise and has implications for millions who use UPI for their daily payments and could impact the further adoption of UPI and the end goal of financial inclusion," Mint quotes Sajith Sivanandan, business head, Google Pay and Next Billion User initiatives, India as saying.
Google Pay, along with PhonePe make up a major chunk of the UPI market holding about 40% market share each. In October alone, PhonePe reportedly processed 83.5 crore transactions (a little over 40%), while Google Pay processed around 82 crore transactions. This is out of the 207.16 crore transactions that UPI registered overall in that month.
The new cap, however, will not impact Paytm, which also offers UPI payments on its app. This is because Paytm is classified as a payment service provider and not a third-party app.
The new market share cap also came hours before WhatsApp finally got NPCIâ€™s nod to go live on UPI. With its existing user base of over 400 million, WhatsApp Pay could become a formidable competitor for not just Google Pay and PhonePe, but also to Paytm. NPCI, on its part, said that the cap will create a more competitive market.
However, many have also observed that failure rates are likely to increase further due to the limit. According to NPCI data for September 2020, 10 out of 30 of Indiaâ€™s top banks saw failure of over 3% due to technical difficulties on UPI payments.
However, Sameer Nigam, Founder and CEO, PhonePe has assured all customers, merchants that there is no risk of transaction failures.
"We have reviewed the recent NPCI circular and want to assure all our customers and merchants that there is absolutely no risk of any UPI transactions on PhonePe failing. In fact NPCI's circular categorically says that the 30% market share cap does not apply to existing TPAPs like PhonePe until Jan 2023. PhonePe remains fully committed to ensuring that there is no customer disruption caused by this circular,â€ť Sameer said in a statement.