The digital payments space in India, specifically the UPI payments services, is about to undergo a major shakeup. The National Payments Corporation of India (NPCI) has made it official that a new cap will be applicable from January 1, 2021 which mandates that no Third Party App Providers (TPAPs) can exceed more than 30% of the total volume of UPI, or Unified Payments Interface, transactions. This will impact players including PhonePe, Google Pay, Paytm and Mobikwik, as well as the new entrant WhatsApp Pay, to name a few. NPCI believes this is to protect the UPI ecosystem as it scales up and to address the risks.
But how will the cap be calculated. NPCI says that the cap of 30% will be calculated on the basis of the total volume of UPI transactions that were processed in the preceding three months. This will be done on a rolling basis. They also say that any existing players who are currently above the cap amount will have a period of two years to comply, in a phased manner. At this time, PhonePe and Google Pay will be the most impacted, since both players are completing closely with each other with around 40% each of the total UPI transactions. These guidelines will be applicable for all UPI players, including Amazon Pay, Mi Pay, Samsung Pay, Truecaller and more.
According to the data by the National Payments Corporation of India, the UPI transactions clocked the 207 crore (2.07 billion) transaction mark in October. These transactions are worth as much as Rs 3.3 lakh crore. There has been a steady rise in UPI transactions, with a reported 180 crore UPI transactions completed in September valuing to as much as Rs 3.29 lakh crore and 161 crore transactions in August. This steady rise in UPI transactions are due to a variety of factors, which includes more online purchases and payments being done as people stay indoors due to the coronavirus pandemic, the festive shopping season and also the recent online sales on various shopping platforms including Flipkart and Amazon. UPI is one of the digital payment methods, including credit and debit cards as well as netbanking and mobile wallets.
Earlier this month, digital payments platform PhonePe had confirmed that they had now crossed the 250 million user mark, with 100 million monthly active users and clocked 2.3 billion app session in October. This comes at a time when digital transactions are at an all-time high. PhonePe says that in October, they registered 925 million transactions on the app while September saw 750 million transactions. The digital platform is seeing strong numbers from Tier II and Tier III towns in India, with more than 70% transactions coming from users in those towns. PhonePe says they saw 835 million UPI transactions in October which translates into a market share of more than 40% of the total UPI transactions for the month.
What the NPCI notification at this time doesn’t clarify is what will happen in case a TPAP touches and then crosses the 30% cap. “NPCI shall issue a detailed standard operating procedure (SOP) in this regard in due course,” they say.
At this time, it isn’t clear how the payment apps including Google Pay and PhonePe plan to comply with the guidelines, since these two apps will have the most to lose with the new cap implementation that comes in at the start of the new year. The options they will have at their disposal, to comply with the guidelines, include limiting new sign-ups depending on the transaction share on a rolling basis, or limit person to person transaction volumes. However, it isn’t clear yet how, if even, these two methods may be implemented.