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UPI to transform from April 2020: How will it impact PhonePe, G-Pay and WhatsApp Pay


Unified Payment Interface (UPI) ecosystem has been witnessing an intense battle amongst PhonePe and Google Pay. Paytm was also in the race till July but it pulled back on the pretext of the plateauing user base. 

The fight for commanding more market share is going to end from April 2020 as National Payments Corporation of India (NPCI) steering committee has decided to cap market share to a maximum of 33%.

According to the minutes of the discussion which Entrackr has a copy of, NPCI proposed revised guidelines for Multibank Model to minimize concentration risks in the UPI ecosystem. The proposal to put caps on the volume or value limit within the fresh UPI framework.

NPCI is looking to cap market share to a maximum of 50% for the first year for any company while it will be 40% for the second year and 33% for third year onwards. The move will affect the top three apps running on UPI railroad of which PhonePe has already entered into the third year of operations while Google Pay completed two years of operations in India.

Paytm, which was once the market leader in UPI race, had earlier announced to keep itself away from focusing on P2P transactions.

This new framework will be notified soon through a circular and will be effective from April 2020.

Additionally, the committee concluded that UPI transaction apps (both P2P & P2M) processing more than 5% of the total volume of the ecosystem shall mandatorily move to multibank model only. Such platforms on UPI may associate with up to 10 Banks in the Multibank model and shall have minimum three sponsor banks within six months of the issuance of circular.

The committee approved to increase the current limit of Rs 1 lakh per transaction to Rs 2 lakh for all categories where double KYC is in place. The move will boost transactions for categories such as AMC, B2B collections, mutual funds, insurance, FIR, pre-approved disbursements and credit card payments et al.

The steering committee members also agreed to introduce Aadhaar OTP based UPI PIN generation for onboarding of new user to expand UPI access. At present, PIN generation is dependant on debit cards which is an entry barrier for customers not having a debit card issued by their respective banks.

The committee discussed the communication received from the Department of Revenue(DoR) on the inclusion of GST amount in UPI QR. The department had asked NPCI to include the option for merchants and customers to register their GSTIN and PAN to avail tax benefits. The committee has decided to implement this in the UPI dynamic QR and create the supporting infrastructure for merchant & customer tax incentive.

It was decided that GSTN and PAN shall be collected only on consent basis and customers’ PAN details will be stored with NPCI in encrypted form only. While the official timeline wasn’t revealed, NPCI will submit an implementation plan to the government and identify two member banks for technical proof of concept.

Moving a step forward, NPCI will request RBI for weeding out two-factor authentication norms on recurring transactions. NPCI also updated on the status of UPI 2.0 readiness with discontinuation of UPI 1.0 with effect from 31st Dec 2019.

While these changes are good news for Paytm and to some extent users, the proposal by the NPCI committee would put a brake on the growing scale of PhonePe and GooglePay. If NPCI goes with a decision to cap volume and value processed by firms in the UPI ecosystem, it will impact fundraising, valuation and scale of PhonePe and GooglePay directly.

WhatsApp Pay, which is still unable to launch its payments feature, will also have to contend with a limited scale. Capping the market share of apps in UPI ecosystem is likely to widen the use cases of Wallets in a big way. Paytm had already hinted about its revised focus on wallets.

In an interview with ET, Vijay Shekhar Sharma, founder and CEO of Paytm had emphasised that the company has 250 million KYC verified wallets and he’s optimistic about its positive growth. “A few months ago, we were pushing only UPI, but now we realise it has plateaued. Usage of wallets is not dead,” he added.

With NPCI’s proposed volume restriction of 33% on individual UPI players, faith in wallets seems to have made a comeback. Testimonies of revived trust in the wallet can be gauged from Swiggy and Razorpay’s plan of having wallets.

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