NPCI extends deadline for compliance with UPI volume cap by 2 years

“Considering various factors, the timeline for compliance of existing TPAPs who are exceeding the volume cap, is extended by two years till December 31, 2026," NPCI said in a circular issued on Tuesday.

NPCI had earlier said that no UPI (unified payments interface) app could account for more than 30% of UPI transaction volumes, but the deadline for for TPAPs to comply with this limit has now been extended twice already.

“We welcome the extension of the market cap of UPI apps by NPCI as we strongly believe that the Indian people themselves will choose from dozens of new UPI apps available," said Vishwas Patel, joint managing director of Infibeam Avenues and chairman of industry body Payment Council of India (PCI).

Patel added that Paytm was getting back to capture its lost market share, and Navi, Cred, Bhim, WhatsApp Pay and several other new apps are growing strongly.

Also read | How NBBL's Bharat Connect aims to streamline B2B payments for small businesses

“Banks are also getting their UPI app strategy in place. I strongly believe that in the next two years, the market itself will resolve this market cap issue. Blocking growth of incumbents is not the right strategy and would have surely slowed UPI’s growth," Patel said.

Meanwhile, NPCI also removed the UPI user onboarding limit for WhatsApp Pay, a registered TPAP player, with immediate effect. WhatsApp Pay can now extend UPI services to its entire user base in India. Previously, NPCI had permitted WhatsApp Pay to expand its UPI user base in a phased manner.

“We're committed to making payments on WhatsApp simple, reliable, and secure. Our goal is to add value and convenience to users' lives through various use-cases like bill payments, ticket booking, and shopping. We aim to accelerate digital payments and UPI adoption and continue contributing to India's digital and financial inclusion agenda," a spokesperson for WhatsApp told Mint.

Also read | NPCI interchange fee of 1.2% on UPI credit lines may set off a revolution

Impact of UPI cap

The limit on UPI transactions largely impacted the two largest TPAPs in the country—PhonePe and Google Pay. At the time of the introduction of the cap in November 2020, Google Pay had the largest market share of 41.4% in terms of the volume of transactions and 42.9% in terms of value of UPI transactions processed. Second in line PhonePe accounted for 40.5% transactions in terms of volume and 43.5% in terms of value.

By December 2022, PhonePe had overtaken Google Pay to become the largest UPI processing platform, with a market share of 46.3% in terms of volume and 49.1% in terms of value of transactions. 

Also read | Will RuPay, UPI credit become separate companies? NPCI is planning a big recast of its businesses

Google Pay’s share fell to 34.2% in terms of volume and 33.8% in terms of value of transactions processed. Paytm Payments Bank and Amazon Pay have been the two other large TPAPs but both their shares have remained below the 30% mark.

The trend has since continued with PhonePe’s share rising further to 48.4% in terms of volume and 50.9% in terms of value of transactions as of November 2024. Google Pay’s share improved slightly to 37.6% and 35.7% in volume and value terms, respectively. 

While Paytm’s share fell significantly after the RBI asked the fintech to shut is payments bank effective Mrch 2024, newer players such as Cred and Navi emerged as major players in the segment whereas Amazon Pay lost market share.

PhonePe and Google Pay refused to comment on the deadline extension for compliance with the volume cap.

Growth in UPI transactions

Transactions through UPI have grown phenomenally. In November 2024, UPI processed 15.48 billion transactions, 38% higher on-year. The transaction value stood at ₹21.55 trillion, up 24% from the year-ago period. The average daily count is estimated at 516 million transactions worth ₹71,840 crore, as per NPCI data.

In December (as of 30 December), 16.13 billion UPI transactions have been processed so far. In comparison, 12.02 billion transactions worth ₹18.2 trillion were processed in the corresponding month of the previous year.

In FY24, UPI processed 131.15 billion transactions (worth ₹199.29 trillion), almost 57% more than the 83.76 billion transactions ( ₹139 trillion) of FY23. Growth in the transaction amount was more than 43%. Growth was led by strong growth in both P2M (peer-to-merchant) and P2P (peer-to-peer) payments, as per NPCI data.

Volume cap background

In November 2020, NPCI had introduced a volume cap of 30% on the total UPI transactions processed by TPAPs, starting 1 January 2021 and to be effected by December 2023. However, the deadline was extended in December 2022.

The cap is calculated basis the total volume of UPI transactions processed in the preceding three months (on a rolling basis), and existing TPAPs exceeding the cap were give two years to comply with the norms in a phased manner.

NPCI had then cited 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.

Also read | Mint Primer | What is NPCI’s game plan for the BHIM app?

In December 2022, the deadline was extended by two years till 31 December 2024, taking into account “the present usage and future potential of UPI" and to allow large TPAPs more time to comply with the cap, NPCI had then said.

The discussion around the volume cap gained ground over the past two years as there has been minimal change in the market share of the larger players despite the multiple extensions.

Why the extensions

The extensions have brought to the fore discussions around the economic viability of UPI transactions, TPAPs’ ability to make money from them, limited interest from smaller players to increase their share, and customers’ loyalty towards their existing platforms, industry experts said.

“UPI transaction volumes have started to stagnate and there are concerns of it tapering further. If we want UPI volumes to grow, we need some incentives such as MDR (merchant discount rate) to encourage more players. TPAP is a capital-intensive business and so UPI transaction processing needs to make economic sense for them," a senior industry official told Mint on the condition of anonymity.

Asked if the NPCI could then consider dropping the idea of a cap entirely till MDR is introduced, the official said that the 30% cap acts as an insurance or hedge to keep the larger players in check till the ecosystem becomes more MDR- or market-driven.

Also read | UPI is world’s digital public good; will aid others build their versions: NPCI's Ritesh Shukla

The government had done away with MDR on UPI in 2020 in a bid to boost digital transactions. This was followed by a ₹1,500 crore scheme to reimburse banks and fintech firms for their MDR losses, something that the government has been following since. MDR is a fee that banks and payment services providers charge merchants for processing digital transactions.

In August 2022, RBI had floated a consultation paper proposing a tiered fee structure for UPI payments to make payment services reasonable and competitive for users while also providing optimal revenue for intermediaries.

Since then, several industry players have batted for MDR charge on UPI transactions to make the segment profitable. However, the government has maintained that UPI is “digital public infrastructure" for public good and will continue to remain free of charge.

Later, NPCI introduced an interchange fee of 0.5-1.1% on PPI-based merchant UPI transactions from April 2023.

PPIs, or prepaid payment instruments, are payment tools such as cards and wallets that allow users to make payments, access financial services, and transfer funds from prepaid or pre-stored money. Banks and non-banks provide these PPIs after completing KYC (know your customer) verification.

And read | NPCI interchange fee of 1.2% on UPI credit lines may set off a revolution

This July, Vikas Bansal, CEO of Amazon Pay India—the digital payments arm of e-commerce giant Amazon—had said that implementation of MDR for UPI transactions is necessary for smaller players to receive a fair share of value they add to the payments ecosystem.

Incorporated in 2008 as an umbrella organisation for retail payments and settlement systems in India, NPCI today manages and supervises the entire payment and settlement infrastructure and ecosystem in the country. Some of the major products offered by NPCI and its subsidiaries include Unified Payments Interface (UPI), home-grown card infrastructure network ‘RuPay’, Bharat Interface for Money (BHIM) platform, Bharat Connect (formerly Bharat Bill Payments System) and Aadhar-enabled Payment Services (AePS), among others.