NPCI Mulls Raising UPI Market Share Limit Beyond 40%: What It Means for PhonePe and Google Pay

In a move that could reshape India’s digital payments landscape, the National Payments Corporation of India (NPCI) is considering raising the market share cap for Unified Payments Interface (UPI) operators, according to sources familiar with the matter. The decision comes as NPCI struggles to enforce the previously proposed 30% market share limit.

The NPCI, which oversees the UPI system and reports to the Reserve Bank of India, is now mulling increasing the market share limit to over 40%, the sources told TechCrunch. This potential change in policy could have far-reaching implications for the UPI ecosystem, which has seen a duopoly emerge in recent years.

Currently, Walmart-backed PhonePe commands a dominant 48% market share by volume and 50% by value, while Google Pay holds a 37.3% share by volume. Paytm, once a major player in the space, has seen its market share drop to 7.2% from 11% at the end of last year due to various regulatory challenges.

The NPCI had initially proposed a 30% market share cap in November 2020 to limit the dominance of major players and encourage competition. However, the deadline for implementing this cap has been extended multiple times, with the current deadline set for December 2024.

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Despite these efforts, the NPCI has struggled to find a feasible way to enforce the market share limit, leading to the consideration of raising the cap. This move is likely to be controversial, as several UPI providers have been hoping regulators would step in to curb the dominance of PhonePe and Google Pay.

The NPCI has not yet responded to requests for comment on the matter, but the potential change in policy could have significant implications for the future of digital payments in India.

UPI’s Exponential Growth and Dominance

UPI has become the most widely used way for people to send and receive money in India, processing over 12 billion transactions per month. The system’s popularity has grown exponentially since its introduction in 2016, with almost all digital wallets and online payment apps in India incorporating it.

The dominance of PhonePe and Google Pay in the UPI market has raised concerns about the lack of competition and the potential for these players to stifle innovation. The NPCI’s initial proposal to cap market share was aimed at addressing these concerns and promoting a more level playing field for smaller players.

Potential Impact on the UPI Ecosystem

The NPCI’s decision to consider raising the market share cap could have significant implications for the UPI ecosystem. If the cap is increased to over 40%, it could allow PhonePe and Google Pay to further expand their reach and invest more heavily in new features and services.

However, this move could also be seen as a setback for smaller players who were hoping to gain a foothold in the market. The lack of a strict market share limit could make it more difficult for these players to compete with the established giants.

Expanding UPI’s Reach Beyond India

Despite the challenges faced by the NPCI in enforcing market share limits, the UPI system continues to expand its reach beyond India’s borders. In January 2024, Google India Digital Services (P) Limited and NPCI International Payments Ltd (NIPL) signed a Memorandum of Understanding (MoU) to enable UPI payments for travelers outside of India and assist in establishing UPI-like digital payment systems in other countries.

NIPL has also signed agreements with Fonepay Payment Service Ltd in Nepal and Eurobank S.A. in Greece to facilitate cross-border transactions using UPI rails. These initiatives demonstrate the growing global interest in India’s digital payments success story and the potential for UPI to become a model for seamless financial transactions worldwide.

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