“Payment Puzzle” India’s Effort To Fix It

Posted On - 22 December, 2020 • By - Latha Shanmugam

NPCI Puts Cap On The Share Of UPI Apps – NPCI UPI Market Share

Under the provisions of the Payment and Settlement Systems Act, 2007, the Reserve Bank of India (RBI) and Indian Banks Association (IBA) formulated an organisation called National Payments Corporation of India (NPCI) for operating retail payments and settlement systems in India.

This “Not for Profit” Company was incorporated under Section 25 of the Companies Act, 1956 (now under Section 8 of Companies Act, 2013) to provide infrastructure to the banking system in India for physical and electronic payment and settlement systems.

Conceptual Understanding UPI System and NPCI UPI market share

UPI is the term that is used in the context of fund transfer from one account to another without any requirement of bank account number and IFSC code, in fact, one requires the virtual payment address of the receiver in order to transfer the fund instantly.

Though there are many advantages of the UPI system such as no or minimal charges applicable for the transactions done, no need to fill the various details like ATM card number, account number and IFSC code, in fact, one has to give their virtual address only and there is no need of any registration. There are various drawbacks such as a transaction limit per day basis, the requirement of internet and smartphone such as additional expenses, and the sender and the receiver must have the same application installed to send the money or receive the same.

Target 2022, NPCI New Rules for UPI (NPCI UPI market share)

The most innovative payment system introduced by NPCI amongst all is the Unified Payment Interface which was launched in 2016 since then it has emerged as the fastest-growing fee mechanism.  In October and November 2020, during the pandemic situation, the progress boosted as money untilisation was declined due to social distancing.

At that time, NPCI believed that the UPI would involve the mixture of banks, startups and international platforms, but the UPI has been largely dominated by two–third party apps owned by two massive American corporations Walmart owned PhonePe and Google Pay which collectively grabs 80% of all UPI transactions compared to Paytm, Amazon Pay and others payment options. Even the BHIM in addition to other apps by conventional banks introduced by NPCI has been thwacked by PhonePe and Google Pay due to demonetisation.

The rising platform of the third party apps depicts an increasing systemic threat to UPI. This irritates NPCI’s promoters and more so at the Government which is suspicious of international platforms dominating an emerging medium within financial sector. To handle these issues not less than for two years NPCI has been trying to cap the npci upi market share through a single third party UPI app, which was tried through Yes bank and PhonePe’s tie up which was drastically flopped which caused the crisis not only for PhonePe but for NPCI also. However, the PhonePe resumed its service within 36 hours after the partnership with ICICI Bank.

Hence on November 05, 2020[1], NPCI has announced1 to cap the npci upi market share of a single third party app to 30% starting from January 01, 2021 which shall be determined on the basis of the volume processed during the preceding three months. PhonePe, Google pay and other third party apps are given two years time to comply with the requirements of the cap. Further, the NPCI has given the approval to WhatsApp to launch its UPI stating it may broaden its UPI consumer base in a “graded method” beginning with 20 million i.e. less than 5% of its users in the country.

With 30% capping NPCI is clearly attempting to balance the politicians’ desire to restrain the growth of the foreigners in the financial sector and reduce the systemic risk to UPI without disturbing the present enjoying discipline. NPCI proved how vexatious the internet regulation can become by evoking the License Raj era (the term used to describe India between 1947 to 1990s, when the setting up of business was highly regulated, and one had to take approval from various agencies to start the business).

Expert Opinion

According to the critics, 30% market share cap on the third party apps may limit the ability of the UPI apps to expand and potentially also hurt customers’ experience which is arbitrary and may introduce the operational alteration, but the dominance of the American third  party apps still exists.  Further, they also question how the 30% cap can resolve the systemic risk on UPI and restricting the WhatsApp from launching fully, the NPCI is hurting its own mission of promoting the payment network across India.

The 30% cap restriction will either affect the existing UPI users or is going to delay the new users to board. In either case, it is going to affect customer experience by slowing down the UPI performance which is not something that NPCI is expecting.


Nonetheless, the NPCI is trying to have dominance over digital payments like UPI, Rupay, etc. as many internet spaces in India like email, messaging, social networking, e-commerce is dominated by American platforms like Amazon, Google and Facebook. If a delicate system like the financial sector is let to be dominated by international platforms with third party apps, it may cause systemic risk to the UPI system. To have control over such dominance, the NPCI has applied the 30% cap system on the international apps and control over the WhatsApp launch.

[1] https://www.npci.org.in/PDF/npci/press-releases/2020/UPI-balances-consumer-experience-with-growth-for-TPAPs.pdf

[2] NPCI UPI Market Share

Contributed by – Latha Shanmugam

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DISCLAIMER: The article is intended for general guidance purpose only and is not intended to constitute, and should not be taken as legal advice. The readers are advised to consult competent professionals in their own judgment before acting on the basis of any information provided hereby.