NPCI caps UPI market share from Jan; WhatsApp Pay to go live for 20 Mn users

National Payments Corporation of India or NPCI will put a cap of 30% of the total volume of transactions processed in UPI for all Third-Party App Providers (TPAPs), which will be applicable from January 1, 2021, said the not for profit organisation in a press release.

According to NPCI, the move will help to address the risks and protect the UPI ecosystem as it further scales up. The cap of 30% will be calculated on the total volume of transactions processed in UPI during the preceding three months on a rolling basis.

Importantly, Whatsapp has also been allowed by NPCI to go live on  UPI in the multi-bank model. WhatsApp Pay can expand its user base in a graded manner starting with a maximum registered user base of 20 million in UPI. So far, around 10 million users were allowed to use the digital payments service.

At present, WhatsApp has over 400 million monthly active users in India. The fresh permission would allow the instant messaging app to cover a mere 5% of its total user base via its UPI-based payments service.

In the UPI ecosystem, Google Pay and PhonePe have a collective market share of around 80%. The development has come at a time when UPI has recorded its highest volume in a month. UPI had processed more than 2 billion transactions in October in which PhonePe emerged as the largest shareholder with 835 million transactions.

Google Pay, which has been dominating the volume on digital planets railroad, slipped to the second position with 819 million transactions out of 2 billion in the last month.

Capping the market will help in curbing concentration risk that is limited to some players, mainly Google Pay and PhonePe. Paytm won’t be impacted as it shifted focus from UPI to its wallet.  Amazon Pay is yet to be a sizable player. In October, its share in the UPI ecosystem was in single-digit (6%).

In case of exceeding the limit, NPCI will also allow the third-party apps, a period of two years from January 1, 2021, to comply with the new rule in a phased manner. This essentially means that the cap won’t impact third-party app providers or TPAPs like Google Pay and PhonePe anytime soon as implementation would take place in phases until 2023.

For the past couple of months, UPI users have been facing frequent failure in transactions. While NCPI is working on an online dispute resolution system to address the issue of failures on UPI transactions, experts believe that capping the limit for TPAPs will trigger upstick rates of failure of transactions.

NPCI has been mulling to put a limit on UPI volume from the late last year. However, the rule released by NPCI is quite different from the previous guidelines.

According to the previous guidelines formulated by the steering committee, all third party and bank apps had to put a limit on the volume and value of transactions which was expected to start from 50% in the first year of operations, 40% in the second year and 30% in third years of incorporation.