In a relief to PhonePe and Google Pay, UPI apps may get more time to comply with the 30% cap on market share

• The National Payments Corporation of India (NPCI) is currently considering extending the deadline for its market share cap guidelines.
• The current guidelines cap the market share of each app to 30% of the transactions.
• The extension of the deadline will benefit apps like PhonePe and Google Pay.

The National Payments Corporation of India (NPCI), the regulatory body that oversees Unified Payments Interface (UPI) operations had earlier introduced guidelines for third-party apps such as PhonePe, Google Pay, Paytm and more that mandate that third-party apps should not hold more than 30% of the market share.

The current deadline for the implementation of the new guidelines is January 2023. According to an Economic Times report, NPCI may extend the deadline for the implementation of market cap for third-party UPI apps.

This will come as a huge relief to apps such as PhonePe and Google Pay that currently dominate the market.

According to data from NPCI, PhonePe and Google Pay accounted for nearly 47% and 34% of transactions respectively in April 2022, meaning the two apps enjoy a market share of over 80%.

Paytm, which dominated the payments market before the introduction of UPI is third with a market share of 15%.

According to the above report, the implementation of guidelines has been delayed in order to prevent disruption of services and issues to users. "There is no choice but to consider this actively. They (NPCI) are wary of disrupting users and in effect slowing down UPI growth," said the source to ET.

WhatsApp, which recently received approval to onboard more users is yet to make a dent in the market and NPCI is hoping players like Paytm and WhatsApp help in reducing the market share of the dominant apps to prevent a monopoly or duopoly in the market.

“While there is still some time (six months) to go before the end of the deadline but unless a player dramatically rises to disrupt the market, a delay in the said rule is being considered," sources added.

Here’s how the market cap guidelines work

The market cap guidelines are based on the transactions done on the app each month and are not concerned with the number of users. This means that total transactions on a particular app should not cross 30% of total transactions.

The 30% market cap was announced in November 2020 and the NPCI had announced that companies will get two years from January 2021 to implement the market cap.

If a company crosses the 25% transactions limit, NPCI will issue an alert to the company and a second alert will be sent if the app crosses the 27% threshold and they will have to outline the steps being taken by them to adhere to the 30% limit.

If any app crosses the 30% threshold, customers will not be able to make more transactions on the app.

This seems very impractical as the current market share shows that PhonePe and Google Pay are being preferred by the users and if we assume that the current trend will continue, around 20% of the transactions will decline.
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