Reserve Bank of India Deputy Governor T Rabi Sankar on Friday addressed concerns regarding National Payments Corporation of India's (NPCI) rule of a 30% market share cap for unified payments interface (UPI) apps.
Speaking at the 18th Mint BFSI Summit, Rabi Sankar elaborated on the RBI's stance on NPCI's rule and said, “The basic issue is it's difficult to implement.”
He further questioned, “How do you implement a cap? Can you ask an entity that is actively doing business to say that you stop acquiring customers, and this is number of transactions. How do you tell someone that?”
NPCI last year extended the deadline for third-party application providers (TPAPs) to 2026 to comply with limits on UPI transaction volumes that they process. The body had earlier said that no UPI app could account for more than 30% of transaction volumes, but the deadline for TPAPs to comply with this limit has now been extended twice already.
Need for more players
The central bank deputy governor emphasised that the focus should be on increasing participation by inviting more players into the market, aiming for an even distribution after recent delays.
“So it is difficult to implement without actually affecting the access of the UPI system to others. It has been postponed. We are just hoping, and we are encouraging, and we are taking steps to ensure that more and more people come in. We are seeing that now. I think the best way of achieving that result would be if other players come in, at least, you know, three or four other players, and that is more evenly distributed," he said.
Concentration risks
With a handful of players in the UPI ecosystem, Rabi Sankar addressed the concentration risk, stating that it does not significantly impact the system, as it involves transactions between banks, rather than the market share of third-party apps. Even with potential issues, the system remains secure.
Speaking on the concentration risk, Rabi Sankar said, “On concentration, I'm not unduly worried. It is, strictly speaking, not market share. You see, these are third-party apps, right? UPI is a transaction between two banks. So the share of business that the third-party app has does not matter so much, a system that facilitates transactions between two banks, which is very distinct, very different. And even if the concentration risk, you know, even if something happens to one of those two, there's no risk to the system."
NPCI's 30% cap
NPCI had introduced a volume cap of 30% on the total UPI transactions in November 2020, starting 1 January 2021 and to be effected by December 2023. The deadline was extended in December 2022.
The cap is determined based on the total volume of UPI transactions processed in the previous three months (on a rolling basis), and existing TPAPs that exceed the cap were given two years to gradually comply with the norms, Mint reported earlier.
NPCI had earlier indicated the significant growth in UPI transactions and the potential for future growth as the rationale behind introducing the cap, to address any concentration of other risks and protect the UPI ecosystem as it scales up.
