India likely to delay UPI market caps in win for PhonePe-Google Pay duopoly
India’s mobile payments regulator is likely to extend the deadline for imposing market share caps on the popular UPI (unified payments interface) payments rail by one to two years, sources familiar with the matter told TechCrunch.
The National Payments Corporation of India (NPCI), a special unit of the Reserve Bank of India (RBI), plans to extend the deadline for introducing a 30% cap on the market share of individual UPI ecosystem participants, the sources said.
The decision is expected to greatly benefit Google Pay and Walmart-owned PhonePe, which currently dominate the market for UPI payments in the country.
UPI has become the most popular way to send and receive money and make payments in India, and the channel sees over 11 billion transactions per month. PhonePe currently commands roughly 49% market share by volume, followed by Google at 37.4%. Paytm, their closest competitor, has seen its share drop from 11% at the end of last year to 8% amid regulatory challenges.
The NPCI had initially planned to enforce the market share cap in January 2021, but postponed the deadline to January 1, 2025. TechCrunch had previously reported that the regulator was moving towards extending the deadline further after concluding that there is no practical solution to address the issue.
The NPCI hasn't reached a final decision yet and may make changes to its plan by the end of the year, the sources cautioned.
An NPCI spokesperson declined to comment on all market share questions.
This decision is likely to attract criticism from other players in the ecosystem who have been urging the NPCI to follow through on its commitment. Some companies have proposed solutions, such as incentives that benefit smaller players.
A parliamentary panel also asked New Delhi in February to counter the dominance of PhonePe and Google Pay. “As India, focusing on ‘Make in India’ in other sectors, the Committee are of the opinion that local entities are to be promoted in the fintech sector,” the parliamentary panel wrote.
However, several UPI providers admit that an incentive plan that unfairly differentiates against PhonePe and Google Pay will be a bad look for the ecosystem and could send wrong signals to the investor community.
U.S.-based investors, including Accel, Lightspeed, Tiger Global, Insight Partners, Invesco, Vanguard, BlackRock and Fidelity, are among some of the most prolific investors in Indian public firms and startups. Some of the choices made by the RBI and other regulators have already spooked many investors.
On Wednesday, the RBI held a meeting with key players in the UPI ecosystem to discuss strategies for scaling UPI infrastructure, expanding the product portfolio, addressing challenges in the ecosystem, and brainstorming solutions to tackle these issues, the regulator said.
Indian news outlet Moneycontrol first reported (paywalled) that the NPCI was weighing another extension to the deadline.
The market share dilemma isn't the only challenge facing the NPCI and the RBI. The regulators have also discussed introducing more incentives for UPI service providers. Unlike credit card issuers like Mastercard and Visa, which charge merchants a fee for consumer transactions, UPI — established seven years ago by a consortium of banks — largely functions at no cost to merchants.
India’s UPI is “fantastic at many levels,” but remains an “incredibly painful experience” for ecosystem participants who "all end up losing money as part of that proposition," Mastercard’s CFO, Sachin Mehra, said last year.