New UPI rules to avoid market share monopoly may affect India’ bid for financial inclusion—here’s why

When the National Payments Corporation of India (NPCI) announced in November 2020 that it would cap the market share of third-party Unified Payments Interface (UPI) app providers to 30 percent of the total volume of business in India, the goal was straightforward—to avoid monopolies.

Now the apex body has cemented this move by rolling out a Standard Operating Procedure (SOP) that will ensure that third party UPI apps in the country are following the said cap on market share. But what does this mean for India’s nascent fintech sector?

Avoid monopoly or kill competition

In this era of digital payments, regulation is necessary—but does it stifle growth and innovation?

According to the NPCI, the use of the UPI network has been on the rise in the past year with a reported 2 billion monthly transactions in November 2020. This is not surprising given that more people are opting for convenience when it comes not only to paying for goods and services, but also when it comes to leisure activities—using digital payments to access entertainment platforms like SevenJackpots’ online casinos or PureWin.com

A recent study by Vivo and Cyber Media Research (CMR) found that in 2020, an average user in India spends one-third of their waking hours on their smartphones, or roughly 1800 hours in a year. Nipun Marya, director of brand strategy at Vivo India, told The Economic Times, “The year 2020 was unusual—a year that nobody had imagined. Amidst the socially distant lives that the pandemic pushed us to lead, the smartphone emerged as the central nervous system for everything—be it working or learning from home or staying connected with friends and family. However, while smartphones have given much-needed flexibility to people, its excessive use has led to addiction among users, and that, in turn, is impacting human relationships and behavior.”

Regulation to grow digital payments sector

At the moment, Google Pay and PhonePe enjoy a market share of more than 30 percent as they have been in operation before the regulation went into effect. These two UPI providers have two years to comply with the policy, and the NPCI will conduct a bi-annual compliance review from January 2022.

Other providers like Amazon Pay and WhatsApp Pay can aim for a larger transaction volume. WhatsApp launched its payments feature in December 2020 with support from banks including the State Bank of India (SBI), HDFC Bank, ICICI Bank, and Axis Bank.

Sajith Sivanandan, business head of Google Pay and Next Billion User Initiatives, India, was quoted by Bloomberg Quint in November 2020 saying, “The announcement has come as a surprise and has implications for hundreds of millions of users who use UPI for their daily payments and could impact the further adoption of UPI and the end goal of financial inclusion.”

As the NPCI puts it, with the UPI platform becoming a preferred payment option the regulation will give the ecosystem “an opportunity to grow their volumes further.”

“Currently with over 500 million smartphones, 1.2 billion Aadhaar users and 1 billion mobile phones, it is possible to increase the UPI user base to five times (5X) in the next three (3) to five (5) years, aspiring to achieve a billion transactions a day on this fully interoperable platform that UPI is. Truly, UPI has the potential to be one of the first of its kind with the fully interoperable systems, and with participation of the banks and fin-techs collaborating together,” the NPCI said in a statement.

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