The unified payments interface (UPI), set up in April 2016 by the National Payments Corporation of India (NPCI), continues to make waves and grow. But neither the growth nor the dominant players are the ones who were anticipated to dominate the market, leading to preventing NPCI's 5 November 2020 circular, capping individual market share at 30%.
At the time NPCI issued the circular, it was anticipated that WhatsApp's proposed payment systems would follow the trajectory of China's WeChat Pay, which was adopted much faster than Alipay and others. There were apprehensions that WhatsApp may do the same in the UPI ecosystem. But the Reserve Bank of India (RBI) stalled and limited its reach in other ways. It capped the number of customers allowed to be onboarded by market players. WhatsApp was allowed to onboard 100mn (million) customers in 2020 on its UPI-based payment services.
Paytm, the single biggest beneficiary of demonetisation in November 2016, was also expected to be among the dominant payers but is not even among the market leaders in UPI. Instead, PhonePe with a 48% market share and Google Pay, with 34%, lead the pack even after most players have tapered off the incentives and cash backs that may have helped consolidate their positions earlier.
A top industry expert tells us that both these players appear to have maintained their share by offering a seamless user experience to people.
Meanwhile, at least 15 applications are pending with NPCI, including some major banks that have been slow to understand the potential of UPI. In effect, competition from newer, deep-pocket players will continue to churn the competitive rankings and market shares.
"Upon breach of threshold(s), basis request by third-party app provider (TPAP) through their payment service providers (PSP) banks, there will be a provision to exempt the players to some extent when the volume cap is reached. Such exemption may last maximum up to six months unless specifically further extended," NPCI had said at the time. NPCI perhaps realises that its circular capping market share is both unfair and unnecessary and has addressed it temporarily by extending the compliance deadline to January 2023.
NPCI's 25 March 2021 circular is about the standard operating procedure (SOP) for reducing market share to 30% for UPI players. It states, "The TPAP shall work towards moderating or restricting the new customer onboarding, as the case may be, which could eventually bring down the market share of such TPAP with a view to achieve compliance."
NPCI has not been forcing compliance. It initially offered a two years extension for players to reduce their market share and realises it would take a lot longer, which means that several more extensions may be on the way.
Obviously, the top two are unhappy at the lack of uncertainty since it is bound to affect their growth plans and decisions. In a statement, PhonePe says, "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."
At the same time, sources say, NPCI may be reluctant to cancel the cap on market share altogether just as a matter of abundant caution, just in case some players gradually consolidate holdings and put themselves in a dominant position. This could lead to an unhealthy dependency on a single player, endanger the entire UPI ecosystem in case of system failures at the player's end and have a systemic impact as well. Letting go of the power to cap market share will make it difficult for NPCI to step in quickly in case of such an eventuality.
During August, 6.57bn (billion) transactions were recorded on UPI, amounting to Rs10.72tr (trillion), a record high. The volume of transactions jumped 85%, and the value 67.85% year-on-year (YoY), data from NPCI shows. In FY21-22, UPI processed more than 46bn transactions amounting to over Rs84.17tr, thus breaching the US$1tr mark.
During the same month, PhonePe registered 3.14bn transactions with a 48% market share, while Google Pay recorded 2.2bn transactions, equal to a 34% market share in UPI ecosystem. Paytm Payments Bank and Amazon Pay registered 871.86mn and 62.43mn transactions on UPI. Despite launching successive cashback campaigns in April and June, WhatsApp Pay managed to garner less than 1% share 6.72mn transactions on the UPI platform.
In India, the COVID pandemic accelerated the push toward digitalisation, especially in the rural areas. The period from March 2020 to August 2022 has seen a massive growth of 427% in UPI transactions, reaching a new high of 6.57bn in August 2022 alone. The number of UPI QR code-enabled payment acceptance points increased by about 90mn or 86% year-on-year (YoY) to reach 200mn as of the end of July 2022, reflecting the growing acceptance and preference for contactless payments.