Google Pay, Phone Pe & UPI Only Wallets Cannot Grow Beyond 33%

Its known that what goes up must come down. This is true not only for basic life norms but also in the concept of basic economy. The cycle of growth consists of boom and then sudden downfall. Well, not to start on a grim note but this is what we can soon expect from the very famous UPI-only applications.

It turns out that the National Payments Corporation of India (NPCI) will soon be issuing a circular for the Unified Payment Interface (UPI) ecosystem, wherein they shall put a cap on the latter’s market share to minimize concentration and systemic risks in UPI.

This is obviously a devastating blow on the management and growth plans of such UPI-only players, like PhonePe, Google Pay and soon to be launched Whatsapp Pay.

NPCI to Limit the Max Market Share for UPI Players to 33%

In the present times, the UPI ecosystem is expanding, especially due to their ease in interfacing for customers and at the same time there has been an intense battle amongst PhonePe and Google Pay, to be on the top. Paytm too was in the race until July, however it stepped down stating that it was just plateauing the user base.

Unfortunately, the picture now looks blur. As per NPCI, the quest for achieving more market share is going to have to come to an end from April 2020. It has decided to limit the market share of UPI players to a maximum of 33%, which eventually blocks their growth plans.

NPCI shall soon release a circular mentioning all these revised guidelines for Multibank Model to minimize concentration and systematic risks in the UPI ecosystem. Interestingly, Paytm is the only major player which is still backing its wallet success and cards besides UPI.

NPCI shall cap market share to a maximum of 50% for the first year for any company,

40% for the second year and

33% for third year onwards.

Since PhonePe has already started with its 3rd year and Google Pay completed its two years of operation in India, they’ll have to comply by the 33% rule.

The committee also concluded that both P2P & P2M UPI transaction apps processing more than 5% of the total volume of the ecosystem shall mandatorily move to multibank model only.

Some More Changes for UPI Apps

The committee has decided to increase the per transaction limit to Rs 2 lakh from Rs 1 lakh for categories with proper double KYC.

This is done to boost up transactions for categories like AMC, B2B collections, mutual funds, insurance, FIR, pre-approved disbursements and credit card payments.

The committee also decided to introduce Aadhaar OTP based UPI PIN generation for registration of new users, to expand UPI access; currently PIN generation is via debit cards, which creates a problem for people not having debit cards of respective banks.

The Department of Revenue(DoR) requested the committee to include an option where merchants and customers could register their GSTIN and PAN to avail tax benefits.

The committee will add UPI dynamic QR and create an infrastructure for merchant & customer tax incentive.

NPCI will request RBI for weeding out two-factor authentication norms on recurring transactions. NPCI also updated on the status of UPI 2.0 readinesses with discontinuation of UPI 1.0 with effect from 31st Dec 2019.

The Cap Will Create a Problem for PhonePe & Google Pay

Putting a market cap of 33% on UPI apps will create maximum downfall thrust on PhonePe and Google Pay, among others. It will put a brake on their growing scales, along with their fundraising and valuation.

In fact, Paytm treats this as a good news as its competitors will have a devastating blow. Capping the market share of apps in UPI ecosystem is likely to widen the use cases of Wallets in a big way. Paytm had already hinted about its revised focus on wallets.

Other industry veterans and experts have applauded NPCI’s move and are of the opinion that this will secure the digital payments infrastructure in India.