Walmart-backed PhonePe asks NPCI to extend the volume cap deadline

With this move, NPCI was aiming to reduce the concentration risk in the system and potentially curb the dominance of two large players while ensuring other players also get a chance to grow

With a little over three months until the volume cap norm on existing third-party application providers (TPAPs) kicks in, Walmart-backed PhonePe has requested the National Payments Council of India (NPCI) to extend the deadline, saying such a move could potentially curtail the growth of digital payments in the country.

“We have formally requested NPCI for an extension on the market cap implementation as we believe that an artificial market cap implementation will severely limit the growth of the digital ecosystem and will impede the goals of financial inclusion,” said a PhonePe spokesperson.

PhonePe processed almost 48 per cent of the transactions done through Unified Payments Interface (UPI) in August, the latest data by NPCI shows. PhonePe and Google Pay put together control over 80 per cent of the transactions through UPI. Google Pay was the dominant player before December 2020.

In November 2020, NPCI came up with a directive capping the share of transactions that a TPAP could process at 30 per cent of the volume of transactions handled on Unified Payments Interface (UPI), effective January 1, 2021, which is to be calculated on the basis of the volume of transactions processed during the preceding three months (on a rolling basis).

However, it gave the existing TPAPs, such as PhonePe and Google Pay, which exceed the desired market cap, two additional years starting till January 2023 to comply with the directive.

With this move, the NPCI was aiming to reduce the concentration risk in the system and potentially curb the dominance of two large players while ensuring other players also get a chance to grow. However, the growth in PhonePe’s market share despite a large base indicates customer preference and convenience is perhaps driving the volumes for the digital payments firm.

“UPI is fully interoperable and there are no entry barriers. PhonePe’s market leadership signifies consumer preference. The only way to reduce the company’s market share would be to block new users and existing users. If a top app is asked to not onboard new customers or block existing customers, it will harm the growth of UPI,” said a source aware of the development.  

An email sent to NPCI on this issue did not elicit a response.

Earlier this month, RBI Deputy Governor T Rabi Sankar said the central bank was going to find a solution to the problem of payments done on UPI getting concentrated on two big players.

“About 80 per cent of transactions on UPI are concentrated in two entities. The United States is addressing the issue (of the market dominance by big tech platforms) now. We are also looking at Europe to see how we can address this issue,” he was quoted as saying.

On one hand, the NPCI does not want to hamper the growth of UPI by restricting any player from processing transactions because eventually, it is the consumers who decide which platform they want to use, and, on the other hand, it has to address the issue of concentration risk.

The umbrella entity was banking on the emergence of new players such as Amazon Pay and WhatsApp. However, so far, these players have not been able to scale up as much. Amazon Pay’s volume market share is hovering around 1 – 1.5 per cent. While WhatsApp has not made any big dent in the volume market share so far, Paytm Payments Bank has increased its volume market share slightly to over 13 per cent now. 

It was also being expected that some of the banking apps, such as iMobile or YONO, would take a sizable market share. Few bank apps such as ICICI Bank’s iMobile, Axis Bank app, and Kotak Bank app have seen some traction but it is to be seen if these apps will be able to corner sizable market share.