Starting January of 2021 on a three-month rolling basis, all payment apps on the Unified Payments Interface (UPI) will be subject to a three-level threshold monitoring by NPCI albeit certain exemptions.
A UPI app that has breached 25% of market share will receive an “alert” from NPCI which they’ll have to “acknowledge”; on exceeding 27% market cap, the cited app must provide “evidence” to NPCI on its plans to bring down volume; and finally on the breach of permissible 30% cap, the TPAP must stop onboardings and provide an undertaking to NPCI.
Exemptions up to six months may be provided by the non-profit umbrella body for retail payments in India, on a “case-by-case” basis to prevent customer disruptions. Even in the event of such an exemption, the cited UPI app must provide a plan to NPCI on its action to bring down volumes within five days of the breach notification.
The compliance to the rules must be ensured by Payment Service Providers (PSPs) or the banks facilitating UPI transactions on behalf of the apps under UPI’s multi-bank model.
“The design principle used in this SOP to control the Volume Cap is by means of user on-boarding on the TPAP’s payment platform (“TPAP UPI App”),” NPCI said in a circular issued to all TPAPs and PSPs late Thursday evening.
“This is done in such a way to ensure that the users on-boarded already are not impacted and that their transaction will not decline, to the extent possible. Further there will be a provision to exempt the players to some extent when the Volume cap is reached, so that it does not create sudden disruption in the market,” NPCI added.
This means that for a period of January to March 2021, the total volume by any single UPI app must not exceed 30% of the overall UPI volume in the same period. However, NPCI with the view of preventing customer inconvenience NPCI has given existing players two years to comply.
In Q4 of 2020, Walmart’s PhonePe and Google Pay each had a market share of over 40%. Under the new rules, these incumbents would have to “moderate” new customer on-boarding and artificially bring down their volumes by the end of 2022.
For other UPI apps such as Paytm, Amazon Pay and Facebook’s WhatsApp Pay, these rules will kick in from the ongoing quarter. The move is among the first by a regulatory agency in India to artificially prevent Big Techs from market monopolization.
The apps have been asked to send the following message to customers in the event NPCI asks to stop new on-boarding due to market cap breach.
“Dear user, as per NPCI rules any UPI app with more than 30% market share cannot onboard new customers until their market share goes down. Currently, <App name’s> UPI market share is <XYZ>% so unfortunately, you’ll have to wait a while before you can access our UPI services. We apologize for the inconvenience and promise to notify you as soon as NPCI allows us to onboard you again!’.”
India’s premier payment body, NPCI, had issued a circular on capping market volume in November of 2020 introducing the rules which had followed months of deliberation. The circular, incidentally, came on the same day as it gave partial approval to WhatsApp Pay to go live on its UPI platform.
At the time, both Google and PhonePe had expressed its displeasure over the move stating that artificially bringing down volumes can hinder customer experience on their respective platforms.
“When we look at the future of UPI, reaching to billion transactions a day, there is a need to smoothen out all the transactions in the UPI ecosystem…The suggested measures in this SOP, shall also encourage the new players to increase their volumes in UPI, so as to even out the distribution of market share among all participants,” NPCI said.
Launched in 2016 by NPCI ahead of the demonetization exercise by the Indian government, UPI has emerged as one of the fastest growing retail payment systems in the world. In February of 2021 it processed over 2.3 billion transactions worth Rs 4.6 lakh crore. NPCI expects these volumes to more than treble over the next three years amid increased smartphone and internet penetration in Indian hinterlands.