Third party app providers, such as Google Pay, PhonePe, and Amazon Pay have a period of two years to comply with this circular in a phased manner.

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Money UPI Friday, November 06, 2020 - 09:38

Third-party app providers will now have to ensure that of all UPI transactions that are processed, no more than 30% of the volume can be processed by one player. According to the National Payments Corporation of India, the total volume of transactions initiated through the third party provider will not exceed 30% of the overall volume of transactions processed in the previous three months. This, it said, was being done “to address the risks and protect the UPI ecosystem”.

It gave the existing third party app providers, such as Google Pay, PhonePe and Amazon Pay, (among a total of 21 providers, according to NPCI), a period of two years to comply with this circular in a phased manner. Soon after this circular, WhatsApp Pay received the NPCI’s nod to go live on UPI.

In October, UPI registered 207.16 crore transactions, a year after it hit 1 billion transactions. PhonePe and Google Pay have a lion’s share of the market, with PhonePe overtaking Google Pay reportedly for the first time in October. PhonePe’s figures for October show that it processed 83.5 crore transactions (a little over 40%), and according to TechCrunch, Google Pay processed around 82 crore transactions. With PhonePe and Google Pay leading in the market, the effect of capping will be largely felt by the big players, with WhatsApp Pay being given approval but only currently limited to 20 million users (up from 10 million).

In September, PhonePe CEO Sameer Nigam told the Times of India that it would not make sense for companies to invest further if they are going to be penalised to get more customers. “Why would anyone play in a game when you know that leadership of the category is going to get you punished?” he asked.

Such a move has reportedly been in the works since August 2019, where the cap was initially going to be at 50% for the first year, 40% in the second and 33% from year three onwards. This was being mulled to ensure that no one company has monopoly over payments.

This move also comes amongst a surge in failure rates of UPI transactions, and is expected to increase it. According to NPCI data for September 2020, ten out of 30 of India’s top banks saw failure of over 3% due to technical difficulties, with United Bank of India’s rates going as high as 12.44%. Compare this to a month prior, when the highest failure rate was 5.78% — that of Corporation Bank.

Last year, Finance Minister Nirmala Sitharaman said that merchant discount rate (MDR) charges will not be applicable on transactions through RuPay and UPI platforms from 2020, saying that the Reserve Bank of India and banks will absorb the cost. Payment companies have also been fighting this, as it leaves no revenue model around the infrastructure, or for banks to upgrade their systems to ensure that failure rates reduce.

This also comes at a time that the NPCI is reportedly looking at bringing in an online dispute resolution system for issues and failures pertaining to UPI transactions.