NPCI LOOKS TO ADDRESS THE UPI MONOPOLY BY CAPPING THE UPI TRANSACTIONS IN A FISCAL YEAR

NPCI LOOKS TO ADDRESS THE UPI MONOPOLY BY CAPPING THE UPI TRANSACTIONS IN A FISCAL YEAR

National Payment Corporation of India (NPCI) has given a not so pleasant surprise to the UPI payment facilitating apps.


NPCI has proposed a rule which says that the total number of UPI transactions for each of these applications will be capped now. Moreover, the proposed rule of capping the number of UPI transactions will be applied retroactively from the month of April 2020 onwards.
 

NPCI has also proposed issuance of a warning followed by a possible penalization of the service providers in case the capping limit gets breached by them. The said changes are a work in progress and the same has not been announced formally by NPCI yet


For the uninitiated NPCI is regulated by the Reserve Bank of India under the Payment and Settlement Systems Act, 2007. Responsibility of daily operations and maintenance of retail payment systems which include UPI, IMPS etc are under the control of NPCI. 
 

Currently, the major service providers for the UPI services are Google pay, Paytm, PhonePe and Amazon pay. If the said changes come into effect the same are going to be affected by them in the first place. 
 


 

What does the proposed rule say?

As per the proposed rules, NPCI will impose a cap on the number of UPI transactions. This cap on UPI transaction is supposed to work in the following way:

  • No payment app can have a more than 50% share of the UPI transactions in its first year of operation.
  • In the second year of operation, there will be a capping on a 40% share of the total UPI transactions. 
  • In the third year and onwards of operation, there will be a capping on a 33% share of the total UPI transactions.

 

Year of operation Proposed Capping % (on UPI transaction)
First Year 50%
Second Year 40%
Third Year 33%

 

Effects on customers

To understand the effect on the customers by the proposed rule by NPCI, let’s have a look at the market share of various payment app giants.
 

UPI Payment Service Providers Market Share
Google Pay 42%
Phone Pe 35%
Paytm 15-20%


As evident from the table, Google pay is clearly the biggest player in this field. As per the changes proposed by NPCI, as soon as the First fiscal year transactions of Google pay touches the 50% share of the total UPI transactions, their users would not be able to use the services of Google pay to make more UPI transaction.

The customers will have to opt for some other payment service provider in that case. This will block the addition of new customers once the proposed capping limit is touched.
 

Effect on UPI payment apps 

The proposed move will severely impact the business of these UPI applications. The condition will be even more challenging after the second year of operations and in the third year, their working and the business will be impacted heavily if the proposed rules come in effect.

As expected, payment service providers have slammed this move of NPCI. They are alleging that NPCI does not want any UPI payment platform to get too successful. They are also concerned about the creation of a barrier for the customers.

As per them, this move would block the customers to use the services of their preferred provider.  
 

Conclusion

If the proposed move of capping the UPI transactions gets implemented, it will surely address the monopoly risk of big players controlling the payment gateway services in India.

Monopoly risk concerns associated with the ‘highly awaited’ launch of Facebook-owned WhatsApp payment services cannot be denied. It would be interesting to see the future course of action regarding the proposed move by NPCI.
 

Edited By Minu Mishra

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