Payments Corporation comes out with SOP to monitor volume cap for TPAPs

The NPCI will monitor the volume cap of the TPAPs and sound an alert to them once it reaches the thresholds that it has decided

The National Payments Corporation of India (NPCI) — the umbrella entity for digital payments in India — has come out with guidelines on capping the volume of transactions that third-party application providers (TPAPs) can process on the Unified Payments Interface (UPI).

It has been kept at 30 per cent so that players in this space do not monopolise the market, which is the case right now.

NPCI had said that the volume of transactions that TPAPs can process on the UPI platform should not exceed 30 per cent, during the preceding three months, on a rolling basis, effective January, 2021.

Also, existing players with higher market share, in terms of volume of transactions, will have two years to comply with the directives.

In a communication to players, the NPCI has said it will monitor the volume cap of the TPAPs and sound an alert to them once it reaches the thresholds that it has decided.

So, when market share of the TPAP reaches 25-27 per cent, NPCI will reach out to them and the payment service provider (PSP) banks through an email, which they have to acknowledge.

On exceeding the 27 per cent market share, a second alert will be sounded by NPCI to the apps and the banks by way of email or letter. This time, both the players will have to provide evidence of action in compliance with the volume cap.

Consequently, on breaching the 30 per cent volume cap, the TPAP and PSP bank have to stop onboarding new customers and provide an undertaking with regard to compliance of the volume cap.

“The alerts are passed on to the TPAPs and PSP bank to ensure they take remedial measures,” the NPCI said.

The existing UPI apps, which have breached the 30 per cent volume cap, will have two years to comply with the standard operating procedure (SOP) and the NPCI will review it on a half yearly basis starting January 2022.

The volume cap for TPAPs is effective from January this year. Also, the NPCI has started reporting a UPI app’s value and volume on the NPCI website.

“The suggested measures in this SOP will also encourage new players to increase their volumes in UPI so as to even out the distribution of market share among all participants,” NPCI said.

A Paytm spokesperson said, “NPCI has taken a welcome decision that would help in the healthy growth of the whole ecosystem. This guideline ensures that UPI will not be dependent on any single player. Paytm has been the largest digital payments platform, processing over 1.2 billion transactions monthly. It provides all digital types of payment methods, including wallet, UPI, cards and banking services.”

In case NPCI decides to give exemptions to the TPAPs, it will last only for six months. During that period, if NPCI finds out that the market share of the TPAP has breached the volume cap, then it may be asked to immediately moderate the on-boarding of new customers along with a plan to remedy the noncompliance.

Also, during the exemption, the TPAP can adopt new customer acquisition methods in a moderate manner, if permitted. But, if the customer acquisition process continues without moderation, NPCI will issue a notice to stop the process.

“The provision of exemption will ensure that existing users are not put to inconvenience and new customers on-boarding are also not fully shut as mentioned in the SOP,” the NPCI said.

If NPCI is of the view that market share of the TPAP is reducing due to moderation in the customer acquisition process and it may take the TPAP longer to comply with the volume cap, then it may offer additional time.

If the breach is not remedied during the exemption, then NPCI reserves the right to levy penalty or block — from its central UPI system — the new user on-boarding customers for the concerned TPAP.

In January 2021, PhonePe had processed 968.72 million transactions worth Rs 1.91 trillion. Google Pay, on the other hand, has seen a fall in transaction volume since November last year.