The banking regulator’s action against Paytm Payments Bank has reignited the debate on the proposal for a ceiling of 30% market share by volume for unified payments interface (UPI) apps, people aware of the matter said.
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The proposal for a market share cap had been floated to ‘de-risk’ one or two platforms from becoming too critical for payments volumes. After several rounds of discussions and petitions by major companies operating such apps, the National Payments Corporation of India (NPCI), in December 2022, postponed implementing the plan till December 31, 2024. NPCI manages the UPI railroad.
According to a person briefed on the matter, NPCI is likely to take the Reserve Bank of India’s (RBI) approval before allowing any migration of merchants or banking partners with regards to Paytm UPI usage.
This may drive users to open new virtual IDs with incumbents such as PhonePe, Google Pay and other recent entrants, which is likely to tilt the concentration further towards the top two players.
Meanwhile, Walmart-owned PhonePe is considering kicking off a new campaign to corner more users and merchants in the current circumstances, said people aware of discussions.
Prior to the Paytm crisis, the two US-owned players — Walmart’s PhonePe and Google’s local payments services — controlled, on an average, 80-85% of UPI volumes every month. NPCI data as of December 2023 shows PhonePe had 46% share in UPI volumes, followed by Google Pay at 36% and Paytm Payments Bank at 13%.
“Yes, definitely they (UPI leaders) will gain share, in the medium term, at least,” said a person aware of transaction patterns.
Queries emailed to PhonePe and NPCI did not elicit any response till press time on Sunday.
Flipkart is set to open its own UPI service to users later this month but it would be scaled gradually. Currently, it is being tested with a closed user group, ET reported on January 25.
People aware of transaction patterns said the two largest players stand to gain more than others since, despite the newer entrants trying to acquire users, they are yet to move the needle in terms of market share dynamics.
“What if something happens to one of the top two UPI apps? This is why the idea (to cap market share) was proposed especially when WhatsApp entered the fray. It didn’t make any difference and transaction volumes are still concentrated with two players,” a senior industry executive said.
People said the matter was on the regulator’s radar for a discussion after the forthcoming general elections, but the Paytm crisis has put it back in the spotlight.
Another executive aware of the implications of the Paytm issue said new players also needed to step up. “We have seen the new players on UPI haven’t yet made a dent to the top two players’ volumes. This is an opportunity for them too,” he said.
Kunal Shah-founded fintech firm Cred, though, while still at only a fraction of the top three players’ volumes, has slowly climbed its way up to fourth position in the UPI market, leaving behind the likes of Amazon Pay and Axis Bank.
In December, Cred surpassed the 100-million monthly UPI volumes mark for the first time. PhonePe, Google Pay and Paytm Payments Bank clocked 5.6 billion, 4.4 billion and 1.6 billion transactions, respectively, during the month.
NPCI too had stressed on the need for newer platforms to dig in. At the time of extending the deadline, it said, “In view of the significant potential of digital payments and the need for multifold penetration from its current state, it is imperative that other existing and new players (banks and non-banks) shall scale-up their consumer outreach for the growth of UPI and achieve overall market equilibrium.”
A market share cap for UPI, though, could disrupt operations, larger companies indicated. “For an operator to bring down market share cap would mean to deny transactions to users that are already using their services,” an executive said.
Meanwhile, NPCI has also been taking a different approach to the market share conundrum by pushing and allowing newer players to enter the battlefield. ET reported in May last year that NPCI had allowed food delivery platform Zomato to launch its own UPI service.
Slice, Zomato, Groww and Cred are among new entrants on UPI, besides Amazon Pay. Flipkart’s entry is expected to disrupt the dynamics, given it has a large user base and increasingly ecommerce transactions are being made via UPI.