The National Payments Corporation of India, a bank-owned private company which runs critical payments infrastructure like IMPS and UPI, is planning to introduce new guidelines to restrict marketshare of specific companies in UPI to 33%, reports IANS. This is as yet unconfirmed, so I’m addressing the hypothetical situation that this might be put into place.

In my opinion, this would be terrible policy. A few comments:

The real monopoly is NPCI, and that’s because of the banks: NPCI is a private company with 100% marketshare of UPI payments, and despite the Watal Committees recommendation of allowing the creation of multiple digital payments infrastructure companies, so that there is competition, we still have nothing. A large part of this is because of banks, and the RBI’s unwillingness to enable other critical infrastructure companies by enforcing interoperability with such third party aggregators. Who does this policy target? Would it have targeted BHIM? Hypothetically, if the BHIM app, launched by PM Narendra Modi at the height of demonetisation had been at 75% marketshare ever since its launch, would NPCI have considered limiting its marketshare? Realistically, it wouldn’t. Would this have been done in the wallets space, when Paytm was capital-dumping money raised from Alibaba to get a majority of the wallet userbase in India? This is politics mixed with policy: India is looking to create a preferential environment for Indian founded companies (even if they’re largely foreign funded), and the worry is that WhatsApp payments, which has been repeatedly delayed, again because of the RBI’s undemocratic dictat mandating data localisation, is expected to blow away competition. There is no market concentration issue in UPI payments: Leadership in payments transactions has shifted repeatedly in digital payments: at different times, depending on how much money they’re willing to lose. PhonePe, Paytm and Google Pay have led in terms of the highest number of transactions. It’s an open market, and many other players can participate, and no single player has led in terms of the number of transactions consistently, at least, based on from what we know from media reports because NPCI lacks transparency. And this is even before WhatsApp payments has launched. Users aren’t locked in to any app, and can use multiple apps: There is no user lock-in in case of UPI, and users are free to use any UPI application. Registered userbase cannot be used to ascertain market concentration here. As such there are no anti-competitive practices possible here, except perhaps cashbacks. Cashbacks are a concern: Cashbacks are a means to acquiring users and keeping them on the platform, and a sunset clause for cashbacks has been discussed in regulatory circles in the past. If anything, perhaps NPCI can look at addressing this issue, rather than a fictitious market concentration issue. How exactly will be implemented? Will the NPCI put a halt on users wanting to make payments using a particular app in a month the moment they hit a 33% market concentration of transactions? Will they put a limit to the number of transactions via a particular application if they hit crossed the limit of 33% in the previous month? How exactly will this impact the growth of UPI?

The NPCI would be better off working on its own transparency and accountability, and for it to be accountable to the public under RTI. The government would be better off bringing NPCI under regulation as a critical payments infrastructure company, and enforcing interoperability from banks to allow the setting up of other critical payments infrastructure companies, instead of all its eggs being in one basket.