UPI share to be capped at 30%: NPCI to review its decision by year-end, says report

By the end of 2024, the National Payments Corporation of India (NPCI) reportedly plans to reevaluate its proposed cap on market shares for payment providers using the Unified Payments Interface (UPI) services, Business Standard reports.

Initially set for a December 2024 deadline, this cap would limit any single entity to a maximum of 30% of the transaction volumes.

Background on the market share cap

The decision to introduce a cap was announced in November 2022, aiming to curb the dominance of major players in the market. Currently, two giants, PhonePe and Google Pay, control approximately 86% of UPI's market share.

The vast control has raised concerns about fair competition within the UPI ecosystem, prompting NPCI to consider measures that could facilitate more equal opportunities for new and smaller players.

Impact of NPCI's previous policies

In the past year, NPCI has implemented several strategies to balance the competitive landscape. For instance, they introduced an interchange fee on prepaid payment instrument (PPI)-based merchant transactions for amounts exceeding Rs 2,000, specifically targeting UPI transactions. These financial adjustments are part of NPCI's broader effort to encourage investment and user engagement from other entities such as Cred, Slice, and Zomato.

Challenges faced by the industry

The fintech sector has faced significant hurdles due to the zero merchant discount rate (MDR) on UPI transactions, which has discouraged new entrants from investing in the ecosystem.

This zero MDR is seen as a barrier to the growth and diversification of UPI, despite its potential to revolutionize digital payments further. Moreover, Paytm Payments Bank recently saw a dip in its transaction numbers following regulatory restrictions, highlighting the volatile nature of the market.