A day after National Payments Corporation of India (NPCI) announced a market cap of 30% for digital payment firms on UPI, market leader Google Pay said it may impact further adoption of UPI in the country.
The cap comes at a time when WhatsApp Pay launched in India on Friday after the much-awaited approval, with NPCI capping its entry at a maximum registered user base of 20 million for UPI.
Google Pay has hinted that NPCI’s intervention through market cap should be reconsidered, as Indian consumers need to be provided with a ‘choice’ for making digital payments.
“Digital payments in India is still in its infancy and any interventions at this point should be made with a view to accelerate consumer choice and innovation. A choice based and open model is key to drive this momentum. This announcement has come as a surprise and has implications for hundreds of millions of users who use UPI for their daily payments and could impact the further adoption of UPI and the end goal of financial inclusion," said Sajith Sivanandan, Business Head, Google Pay and Next Billion User initiatives, India.
Whatsapp’s entry in India’s digital payments space is expected to expand adoption of UPI by both individual users and small and medium businesses (SMBs), who leverage the Whatsapp Business app to have a digital footprint. It will also now allow businesses to complete digital transactions on its platform.
However, this will be at the cost of rival UPI service providers losing their customers to the new entrant. Currently, Google Pay and Flipkart-owned PhonePe are market leaders in UPI, with each holding over 40% stake.
WhatsApp will enable the service in 10 regional languages and has partnered with ICICI Bank, HDFC Bank, Axis Bank, the State Bank of India and Jio Payments Bank.
The decision on market cap has left payment firms confused on how they can curb their market share and stop the ‘network effect’ of payments.
“WhatsApp entering payments, may tilt the market and help all other players get under the required market cap of 30%. With no cap on value of transaction, players might start focussing on larger ticket sizes of payments. But the transition will be seamless. The challenge however, will remain on how players reduce market share now, without affecting the experience of UPI payments," said Bhavik Hathi, managing director, Alvarez & Marsal.
Although, with WhatsApp’s entry, the share of each payments firm is expected to reduce further, owing to the reach and scale of the app.
PhonePe founder Sameer Nigam had said in an earlier interview that market cap on UPI goes against the principle of it being an ‘open and interoperable’ infrastructure.
"We have reviewed the recent NPCI circular and want to assure all our customers and merchants that there is absolutely no risk of any UPI transactions on PhonePe failing. In fact NPCI's circular categorically says that the 30% market share cap does not apply to existing TPAPs like PhonePe until Jan 2023. PhonePe remains fully committed to ensuring that there is no customer disruption caused by this circular,'' said Nigam recently, replying to Mint's queries.
Two executives at payment firms said the market cap can give a certain edge to WhatsApp, which is the ‘default’ messaging app, for more than 400 million Indians.
“In case, a UPI payment fails for a user because a certain service provider has reached their threshold, rather than downloading another app, they will be keen to switch to WhatsApp which is already installed on their phone. This gives an edge to WhatsApp, as over time it will ask NPCI to increase its market cap," said one executive, asking not to be named.
Paytm, Amazon Pay, did not respond to Mint’s queries.
On Friday, Facebook chief Mark Zuckerberg in a video message said that with UPI, India has created something ‘truly special’, which will open up a world of opportunities for micro and small businesses that are the backbone of the Indian economy.
Total UPI volumes in the country hit an all-time high in October, crossing the 2 billion transaction count, hitting ₹3.86 lakh crore in value, roughly growing at 13%-15% month on month.