The National Payments Corporation of India (NPCI) is thinking of ways to limit the Unified Payment Interface’s (UPI) dependence on any single third-party application.
It proposes to do this by restricting the share of transactions of any single payment company, people familiar with the matter said.
NPCI owns and operates UPI in the capacity of a not-for-profit “umbrella body”.
The burgeoning UPI ecosystem is currently dominated by Google Pay, Paytm, Walmart-owned PhonePe and Amazon Pay, who together control over 90% market share.
ET reported in September last year that NPCI could cap the share of transactions at 33% of the overall market share, to insulate the broader UPI ecosystem against any systemic collapse.
The discussions have gathered steam over the last couple of months, the people said, and NPCI has held closed-door meetings with payment service provider (PSP) banks, members of UPI’s steering committee and select third-party players to discuss the implementation scope and challenges.
One of the ways being considered is to introduce new regulation capping the transaction share at 50% for the first year of implementation and reducing it to 40% and 33%, respectively, over the next two fiscal years, one of the people said.
In case the transactions limit is set to be breached, the NPCI may send warnings to companies to stop onboarding new customers and disable new transactions – else incur a penalty, the person said.
The discussions are “a work in progress” and NPCI has not issued any formal circular or internal advisories on how the system will be implemented, another person aware of the matter said.
NPCI declined to comment.
“Imagine your payments will be distributed to other players, if you reach a market cap which is not under our control. And, players have to de-facto lose customers because new acquisitions will be stopped,” Sameer Nigam, Founder and CEO of PhonePe said in a written response to ET’s queries.
“Also, why hasn’t there been a cap on other payment instruments? While none of the payment players is in the 50% discussion range, what is of concern is the market cap for the second year, as most of us are nearing the 40% cap. We are still awaiting clarity on this from NPCI,” Nigam added.
The move, if implemented, would be significant from a broader fintech perspective, as it would be the first time that the monopoly risk of big tech firms controlling a systemically important payment channel in India would be addressed at an operational level.
The Reserve Bank of India regulates NPCI under the Payment and Settlement Systems Act of 2007. NPCI, in turn, is responsible for daily operation and maintenance of retail payment systems such as UPI, National Financial Switch and IMPS, among others. Recently, RBI reclassified NPCI as a “systematically important Financial Market Infrastructure.”
The fresh round of discussions could also have been triggered amid fears among the NPCI leadership that the payment companies on the UPI network may leverage their expansive customer base to build their own closed-loop payment products, “which would be against the interoperability agreement” that governs the popular payments system, an industry insider said.
Meanwhile, the imminent full-scale launch of Facebook-owned WhatsApp’s payment service on UPI has also triggered fresh concerns of monopoly risks among industry stakeholders, the person said.
In March, the RBI-imposed moratorium on Yes Bank had also exposed systemic flaws in the UPI network, which was criticized for being “over-dependent” on a single bank to power over 40% of the transactions.
This had prompted NPCI to push payment companies to adopt a multi-bank model.
UPI was launched in 2016 – the same year as the ban on high-value currency notes – and is one of the fastest growing retail payment systems in the world.
In June, a record 1.34 billion transactions were processed on the system.
The volume of transactions as on July 29, at 1.37 billion, has already exceeded the June volumes, RBI data showed.