The proposed 30% market share cap on Unified Payments Interface (UPI) apps, set to be implemented by the end of this year, is unlikely to take effect as the deadline approaches. According to a report by ET, industry experts suggest that the cap may not be enforced, leading new entrants to adjust their strategies accordingly.
Uncertainty Among New Entrants
Several new players in the UPI market have been informally advised that the 30% market share cap might not be implemented, prompting them to revise their growth and investment plans. These companies had previously held back on significant investments in UPI, waiting for clarity on the proposed cap. As of now, the government has not officially informed the National Payments Corporation of India (NPCI) of its stance on this matter.
UPI’s Growth and Market Concentration Concerns
Launched in 2016, UPI was designed to promote digital transactions by prohibiting transaction fees, thereby reducing cash usage. This approach led to concerns about market concentration, as companies like WhatsApp and Amazon Pay have been less aggressive in promoting UPI. Major players like PhonePe and Google Pay, while not directly earning from UPI transactions, have leveraged their large customer base to sell additional services such as loans and insurance.
Initial Proposal and Extensions
The NPCI first introduced the idea of a 30% market cap for third-party app providers in November 2020, with an initial deadline of December 2022, which was later extended to December 2024. The cap was proposed to limit the dominance of major UPI apps like Google Pay and PhonePe and to encourage competition by allowing new players to enter the market.
Possible Extension of Deadline
In May, reports emerged that the NPCI might extend the year-end deadline by up to two years to enforce the 30% market share cap. However, recent conversations within the industry suggest that the cap may not be implemented at all. A senior executive at a smaller UPI app indicated that they have been told the 30% cap “isn’t happening,” leading these companies to adjust their plans accordingly.
UPI Transaction Growth in July
Despite the uncertainty surrounding the market cap, UPI transactions continued to grow. In July, transactions rose by 3.95% month-on-month (MoM) to 14.44 billion, up from 13.89 billion in June. On a year-on-year (YoY) basis, the transaction count surged by 49%.
The transaction volume also increased, reaching INR 20.64 Lakh Cr in July, a 2.8% increase from June’s INR 20.07 Lakh Cr. On a YoY basis, the transaction volume surged by 35%.
Dominance of Major Players
PhonePe and Google Pay maintained their dominance in the UPI market in July, aligning with the overall growth trend. However, Paytm, the third-largest player, experienced a slight decline. According to NPCI data, PhonePe recorded 6.98 billion transactions worth INR 10.28 Lakh Cr, followed by Google Pay with 5.34 billion transactions worth INR 7.35 Lakh Cr, and Paytm with 1.12 billion transactions worth INR 1.23 Lakh Cr.
