NPCI to review decision on 30% UPI market share cap by end of 2024: Report

By the end of this calendar year, the National Payments Corporation of India (NPCI) might review its decision to implement a 30 per cent cap on the market share of payment players offering Unified Payments Interface (UPI) services. The deadline to introduce the limit is December 2024.

“The 30 per cent cap on the transaction volume of payments players offering UPI services will be reviewed by the end of this year,” an industry source told Business Standard on Friday.

In November 2022, a 30% volume cap on third-party app providers was first proposed. UPI players were requested to restrict their market share to 30% within two years.

In March, the NPCI discussed UPI growth with new players. The NPCI discussed strategies to empower entrants in the UPI ecosystem, under which it wanted the third-party payment apps to engage users through investments and incentives.

Brands like Cred, Slice, Fampay, Zomato, Groww, and Flipkart aim to attract users and promote their in-house UPI services.

Last year, NPCI introduced an interchange fee on prepaid payment instrument (PPI)-based merchant transactions through UPI. The interchange fee for PPI issuers on transactions over Rs 2,000 is up to 1.1%. NPCI specified it applies only to PPI-based merchant UPI transactions. UPI transactions in India rose by 56% in volume and 44% in value in FY24 compared to the previous year.

As per a news report in the Economic Times, Google Pay, PhonePe, and Paytm were not invited to this meeting. The basic reason was the top three companies controlled over 90% of both UPI transaction volume and value.

NPCI wants to gather insights from stakeholders on how to create a more level playing field for smaller third-party application providers (TPAPs).

PhonePe and Google Pay dominate the UPI market with an 86% combined share in transaction volumes, as per NPCI data. PhonePe holds 48.3% while Google Pay has 37.6% market share.

Paytm Payments Bank is the third UPI largest player. The next two, Cred and Axis Bank Apps, have a market share of less than a per cent each.

Last month, Paytm Payments Bank was barred from carrying its operations after the Reserve Bank of India (RBI) enforced restrictions on the company in January this year.

Following which, it transaction numbers dropped. Paytm processed 1.23 billion transactions in March, down from 1.57 billion in January 2024. The firm had a 9 per cent market share in UPI as of March this year.

Earlier this week, NPCI allowed One 97 Communications (OCL), Paytm's parent company, to shift its users to new banks for UPI payments that means Paytm can now offer UPI services through partner banks.

In March, NPCI had also allowed OCL to operate as a Third-Party Application Provider (TPAP) under a multi-bank model.

“Following NPCI's approval on March 14, 2024, to onboard OCL as a Third-Party Application Provider (TPAP) on the Multi Payment Service Provider API Model, Paytm has expedited the integration with Axis Bank, HDFC Bank, State Bank of India (SBI), and YES Bank. All four banks are now operational on the TPAP, streamlining the process for Paytm to shift user accounts to these PSP banks," the company said in a stock exchange filing.