Report: NPCI to Reevaluate Decision to Cap UPI Share at 30 Percent by Year-End

The National Payments Corporation of India (NPCI) is set to reconsider its decision to impose a 30% market share cap on payment players offering Unified Payments Interface (UPI) services by the end of 2024, as reported by Business Standard. The deadline for this change remains December 2024, with discussions ongoing about the potential impact and implications of the cap.

In March, NPCI held a meeting with new UPI players to explore avenues for UPI growth. The proposal for a 30% volume cap on third-party application providers was initially made in November 2022, with the aim of diversifying the market and reducing the dominance of major players such as PhonePe and Google Pay.

Data from NPCI indicates that PhonePe and Google Pay currently hold 86% of the UPI market share in terms of transaction volumes, with other players like Paytm Payments Bank falling behind due to regulatory restrictions. Despite its market share decreasing, Paytm processed 1.23 billion transactions in March, highlighting its significant presence in the UPI ecosystem.

One of the key challenges faced by fintech firms in the UPI space is the absence of transaction fees and merchant discount rates, which hinders investment and competition. The discussion of introducing merchant discount rates on UPI transactions is anticipated post-general elections, with a possibility of the market self-regulating once such changes are implemented.

NPCI’s decision to introduce an interchange fee on prepaid payment instrument-based merchant transactions through UPI has had a positive impact on transaction volumes, which crossed 100 billion in FY24. This growth trend is expected to continue, with the value and volume of UPI transactions steadily increasing. The review of the 30% market share cap by the end of 2024 will be a crucial step in shaping the future dynamics of the UPI ecosystem.