NPCI likely to extend volume cap deadline for existing UPI apps

PhonePe, and Google Pay likely to be the beneficiaries

With over a month and a half left for the volume cap norm on existing third-party application providers (TPAPs) to kick in, the National Payments Corporation of India (NPCI) is likely to extend the deadline.

This is mainly because the corporation wants to preserve the growth of its flagship payments platform — the Unified Payments Interface (UPI).

The two players — PhonePe and Google Pay — in breach of norms are also the ones generating the maximum volume for the UPI. According to the latest data released by NPCI, PhonePe has processed over 47.26 per cent of the transactions done through the UPI in October.

Google Pay processed about 34 per cent of transactions through the UPI.

Both these players have a combined market share of 81 per cent in volume terms of the total transactions processed on UPI.

In November 2020, NPCI came up with a directive capping the share of transactions a TPAP could process at 30 per cent of the volume of transactions handled on 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 January 2023 to comply with the directive.

Although the deadline will be extended, NPCI — the umbrella body for retail digital payments in India, which manages UPI — has not decided yet on the number of years the deadline could be drawn out to.

“Doesn’t look like there is a choice because the growth of UPI cannot be hindered. That’s what perhaps we have to head towards,” said a source aware of the development, when asked if the volume cap deadline for existing TPAPs will be extended.

The NPCI’s aim was to reduce the risk of concentration 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 the market share of these two players, especially PhonePe, notwithstanding a large base, indicates customer preference and convenience, perhaps driving volumes for the digital payments firm.

“These guys had close to 40 per cent market share in terms of volume before the guidelines were issued. It is not that they have been allowed to grow. They have invested from the beginning and have reached this stage. Their share has to be brought down organically. Any new player is not being allowed to scale up to an extent it breaches the 30-per cent levels,” said a source quoted earlier.

While NPCI does not want to hamper UPI’s growth by restricting any player from processing transactions, eventually, it is the consumers who decide which platform they want to use. Therefore, it has to address the issue of concentration risk.

“We have to be aware of the fact these players are the only channel and the money flow is between banks,” said the person.

NPCI was banking on players such as WhatsApp, Paytm, Tata Neu, and a few others to scale up substantially, but so far, they have not managed to do so. With the exponential growth being witnessed on UPI and with features such as credit card linkage on UPI, a large number of players have evinced an interest to become TPAP.

“Alternative players have to come in and there is a lot of interest generated because as many as 10–15 players who had applied for a TPAP licence are awaiting approval. There is a rush for TPAP licence and the credit card linkage on UPI is acting as a great enabler for new players. In the next two years, the market dynamics should change, given a lot of new players are joining. This should create some balance in the market,” he added.

Emails sent to NPCI and PhonePe did not prompt a response until the time of going to press.