National Payments Corp. of India (NPCI) has capped the number of Unified Payments Interface (UPI) transactions that payment apps such as Google Pay and PhonePe and their partner banks can execute, in attempt to limit the damage to the payments ecosystem in case one of their systems collapses, two people directly aware of the development said.
The decision on this was taken earlier this month but the rules on capping of market share will apply retrospectively from 1 April, the people said on condition of anonymity.
NPCI first proposed the plan to limit the number or value of transactions in August last year. It then said that payment apps will hit the limit if they exceed 50% of all UPI transactions in the first year of the implementation of the rules, 40% in the second year and 33% from third year onwards. NPCI will trigger warnings to payment apps and sponsor banks if they near the threshold.
In case of a breach of the mandated threshold, NPCI will start penalizing payment firms and banks, and ask them to stop onboarding new customers with immediate effect. NPCI did not respond to Mint’s queries.
“NPCI has explained that this is undertaken as a part of ensuring risk management review across products, and the impact of market capping will be discussed with each firm. Execution details will also be discussed with them in detail," said one of the two people cited, who didn’t want to be named.
This move is expected to hurt payment apps such as Google Pay, which commands a 42% market share, and Flipkart-owned PhonePe, which has a 35% share, along with Amazon Pay, which have been working to spread the acceptance of UPI. It is also likely to influence WhatsApp’s payment offering, which has been running pilots for over two years and is awaiting approval from the Reserve Bank of India.
“UPI is a completely open and interoperable ecosystem by design. There is no barrier to entry to new entrants at all. New players are still entering every day. So why penalize consumers by forcing them to use anything but the best apps/service providers available at any time?" said Sameer Nigam, co-founder and CEO, PhonePe. Though nobody is near the 50% market share range now, the real challenge will start from next year when the limit is reduced to 40%, he added.
NPCI is expected to give payments apps three months to comply with the rules, starting July.
“Market capping got triggered even further after the Yes Bank moratorium in March, which caused outages on the UPI infrastructure. NPCI came in with the understanding that by capping market share, the risk of outages due to ‘one player being too large’ can be mitigated. But in reality, it is counterproductive to the UPI ecosystem and will hit players which are spending on behalf of NPCI to increase the penetration of UPI," said a senior executive of a payment firm, who didn’t want to be named.