50 new payment apps keen on joining UPI despite zero MDR: NPCI MD & CEO

At present, most UPI debit transactions continue to remain free, with payment-processing expenses borne by fintechs and banks

The absence of merchant discount rate (MDR) is not deterring new participants to join the UPI ecosystem, with 50 new third-party application providers (TPAPs) keen on boarding the real-time payments' rails, a senior official of the National Payments Corporation of India (NPCI) has said.

Acknowledging that the absence of a revenue model on UPI may have deterred new players from entering the market in the past few years, Dilip Asbe, managing director and chief executive officer (CEO), NPCI, said, the ecosystem is witnessing increasing interest from new participants in the past one year.

“The revenue model on UPI … that kind of dried off the funnel of new players entering into the market. In the last one year, we have seen a great interest by some players. We have seen the highest number, in fact almost like a 50 new TPAPs wanting to enter the market. So, with the new TPAPs coming in, the existing TPAPs are stepping up some sort of investments,” he said in an interview to MoneyControl.

In the past one year, the ecosystem has seen the entry of new TPAPs offering UPI, including players such as Navi, BharatPe, super.money, among others.

At present, most of debit UPI transactions continue to remain free with payment-processing expenses borne by fintechs and banks.

He indicated that there was a possibility of an MDR being levied on UPI transactions only for large merchants.

“There are many small merchants, and the way they are defined is entities with a turnover of less than Rs 20 lakh. I don’t think an MDR would come for smaller merchants. If it comes in, it would be for larger merchants,” he added.

An MDR is a fee levied on a merchant by a fintech or any other payment processing company for processing a digital transaction including UPI.

The introduction of an MDR on UPI would enable companies to earn revenues from processing these transactions, thereby reducing their payment processing expenses which are completely borne by such entities.

On concerns regarding a duopoly in the market, where PhonePe and Google Pay process close to 87 per cent of monthly UPI volumes, he said that the market will balance itself out on the back of newer use cases such as credit where NPCI has introduced products such as credit card on UPI and credit line on UPI.

“I think it will take some more time than what we earlier envisaged, but for sure the market will balance this out,” he said.

In November 2022, the NPCI had proposed a 30 per cent volume cap on third party application providers. It asked UPI players to limit their market share to 30 per cent in two years.

The NPCI is yet to take a decision on implementing the market cap.

“The government, the Reserve Bank of India (RBI) and the NPCI's objective is to have a more balanced market without hindering much of the growth on UPI,” he explained.

Meanwhile, Asbe added that the apex payments body was using artificial intelligence (AI) for risk and fraud management, for advisories pertaining to anti-money laundering (AML) guidelines, mule accounts and data science.