- NPCI says that third-party payment apps cannot do more than 30 per cent of all UPI transactions.
- The move will help keep the market competitive, says NPCI.
- The 30 per cent cap is likely to hit Google Pay and PhonePe.
A day before National Payments Corporation of India (NPCI) approved WhatsApp Pay in limited manner for now it is only allowed to have 20 million UPI users in India the nodal agency for the retail payment systems came out with a rule that would impact big payment apps like Google Pay and PhonePe. In a press statement, NPCI said that the no third-party app part of UPI payment system would be allowed to carry out more than 30 per cent of all UPI transactions.
The volume of transaction will be measured for preceding three months on rolling basis and the rule will come into effect from January 1, 2021.
The new rule comes on the day the market is seeing a new entrant, which is WhatsApp Pay. What sort of the impact the new rule will have on the market in the long term cannot be ascertained right now, but in the short term it is likely to hit Google Pay and PhonePe, which are popular and reportedly carry out as much as 80 per cent of all UPI transactions.
"With UPI reaching 2 billion transactions a month and with potential for future growth, (NPCI) has issued a cap of 30 per cent of total volume of transactions processed in UPI, applicable on all Third Party App Providers (TPAPs)," said NPCI. "This will be with effect from January 1, 2021. It will help to address the risks and protect the UPI ecosystem as it further scales up."
While NPCI is saying that the capping transactions for third party apps will create a more competitive market, it seems there are some nuances involved. The rule is only going to cover apps like Google Pay that are not part of the banking network. Apps like Paytm, because they have banking licence, are not considered TPAPs so they will not be covered under it, although they too can carry out UPI transactions.
Google said that the announcement was a surprise. "Digital payments in India is still in its infancy and any interventions at this point should be made with a view to accelerate consumer choice and innovation," said Sajith Sivanandan, business head, Google Pay and Next Billion User initiatives, India. "This announcement has come as a surprise and has implications for hundreds of millions of users who use UPI for their daily payments and could impact the further adoption of UPI and the end goal of financial inclusion."
Incidentally, the NPCI announcement came a day before WhatsApp got the permission to start its payment service in India. The permission for WhatsApp Payment, which was stuck for around three years, comes a few months after Facebook, which owns WhatsApp, invested $5.7 billion in Jio Platforms.
Announcing the investment on April 21, Facebook had hinted that the collaboration would help it bring WhatsApp Payment to India. "By bringing together JioMart, Jio's small business initiative, with the power of WhatsApp, we can enable people to connect with businesses, shop and ultimately purchase products in a seamless mobile experience," Facebook had noted in a statement.
WhatsApp will also use UPI to offer its payment services to users and for utilising the payment gateway it is working with five banks in India including ICICI Bank, HDFC Bank, Axis Bank, the State Bank of India, and Jio Payments Bank.