Government to delay market share cap on digital payments, helping Walmart-backed PhonePe, Google Pay

India will again delay market share curbs for a popular digital payment method, two sources told Reuters, favoring Google Pay and Walmart-backed PhonePe, as authorities prioritize growth over concerns about market concentration.

The National Payments Corporation of India (NPCI), the quasi-regulator, will extend by as much as two years the year-end deadline to limit to 30 percent the market share of any company processing payments through the Unified Payments Interface (UPI), the sources said. have direct knowledge of the matter, they told Reuters.

PhonePe’s share in UPI payments rose to 48.3 percent from 37 percent in April 2020, while Google Pay’s share declined to 37.4 percent from 44 percent, according to NPCI data. The two processed a total of 11.5 billion transactions in April, the data showed.

NPCI and Google Pay declined to comment. PhonePe did not respond to an email seeking comment.

India launched UPI in 2016 but has banned companies from charging for the instant digital payments service in a bid to encourage online transactions and reduce the use of cash in Asia’s third-largest economy.

Because they can’t charge for it, Indian banks and others like Meta-owned WhatsApp and Amazon Pay have not aggressively pushed UPI-based payments, leaving authorities to worry about concentration risk.

Although their apps don’t make money from payments, PhonePe and Google Pay have been able to leverage their UPI customer base to sell services like loans and insurance.

The NPCI, which has a regulatory mandate from the central bank, announced the 30 percent cap in 2020 but later extended the deadline by two years to end-2024.

The deadline will have to be extended again, one of the sources said, as it is not possible for PhonePe and Google Pay to reduce their market shares without hurting the growth of UPI payments.

A final decision on the extension will be announced closer to the deadline, said the sources, who spoke on condition of anonymity because they were not authorized to speak to the media.

NPCI had hoped for more competition when WhatsApp was allowed to offer UPI-based payments in February 2020, but the company only had a 0.2 percent market share as of April.

India’s Paytm, with the third-largest share, suffered a drop in payments processed through its platforms after regulators imposed restrictions on the group entity.

Payments firms want removal of the market share cap, asking the NPCI to allow them to charge UPI payments to encourage competition, an official at a payments company said.

The government will decide whether to allow firms to charge for UPI payments, two sources said, but one said NPCI did not support removing the share cap.

UPI transaction volume grew 49.5 percent in April from a year earlier, down from the 54 percent growth seen in March.

The central bank on Tuesday met industry executives to brainstorm ways to expand UPI’s user base, which was around 300 million users and 50 million merchants at the end of last year, according to the latest data.

© Thomson Reuters 2024