NPCI considers easing UPI market share cap amid enforcement challenges

NPCI is considering increasing the allowable market share to over 40% from the previously proposed 30% cap

The National Payments Corporation of India (NPCI), which oversees the Unified Payments Interface (UPI) system, is contemplating relaxing its proposed market share cap for UPI operators, such as Google Pay, PhonePe, and Paytm, as it faces difficulties enforcing its current limitations. According to a report by TechCrunch, the NPCI is considering increasing the allowable market share beyond the previously proposed 30 per cent cap to over 40 per cent.

This proposed cap was initially introduced to boost competition in India’s fast-growing digital payments sector. The UPI, now handling more than 12 billion transactions monthly, has emerged as the country’s leading digital payment platform. Walmart-backed PhonePe leads the market, commanding nearly 48 per cent of transactions by volume and 50 per cent by value. Google Pay holds second place with 37.3 per cent of the volume. Once a major player, Paytm’s market share has dwindled to 7.2 per cent, down from 11 per cent at the close of last year, amid regulatory challenges.

Several UPI operators have been asking for stricter regulatory intervention to curtail the dominance of PhonePe and Google Pay. Despite the growing concerns within the industry, the NPCI has so far refrained from commenting on the issue.

The original plan to implement the market share cap in January 2021 was postponed to January 2025, as the regulator struggled to identify a viable method for enforcement. The stakes are particularly high for PhonePe, India’s most valuable fintech startup, with a valuation of $12 billion. Last month, PhonePe’s CEO, Sameer Nigam, expressed concerns about the uncertainty caused by potential regulatory changes, noting that it could affect the startup’s plans to go public. He urged the NPCI to clarify its concerns or consider alternative solutions to address the situation.

Meanwhile, the NPCI itself has been witnessing significant financial growth. The non-profit organisation reported a surplus of Rs 1,134.31 crore in FY24, a 37 per cent increase from Rs 828.04 crore in the previous financial year. This surge was driven by increased income from payment services, compliance fees, membership fees, and other operating revenue. Despite being a non-profit, the NPCI’s revenues grew by 42 per cent in FY24, reaching Rs 3,278.66 crore.

The NPCI operates a wide range of retail payment systems, including the National Financial Switch, Cheque Truncation System, Immediate Payment Service (IMPS), RuPay card, Aadhaar Enabled Payment System (AePS), and UPI, among others. Promoted by 10 banks, including major players like the State Bank of India, HDFC Bank, and ICICI Bank, the NPCI’s shareholder base includes 65 institutions, ranging from public sector banks to regional rural banks and payment system operators.

As the NPCI grapples with enforcing market share caps, the outcome could reshape the future of India’s digital payments landscape.