PhonePe, Google Pay and other UPI apps get new SOP from NCPI to maintain a 30% market share cap

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The use of Unified Payments Interface or the UPI network in India has been on a rapid rise since the past year. A new circular by the National Payments Corporation of India (NPCI) mentions that this use equated to 2 billion monthly transactions in November 2020. The circular has been released for establishing a way to cap the market share of third-party UPI apps.

Through the circular, NPCI has established a three-tier mechanism to keep a check on any monopoly in the UPI network. Back in November last year, the apex body had capped this market share at 30 per cent, a regulation that has been in effect since January 2021.

A Standard Operating Procedure or SOP now explains the actions taken if a third party UPI player crosses this threshold. If and when any particular UPI service provider has more than 30 per cent of the market share of UPI transactions in the country, they will have to scale back their onboarding, promotional activities, as well as cashback offers.

The warning and subsequent penalty for this will be handed out at three different levels. Here is how it will work:

Level 1: If any UPI app’s monthly market share is between 25-27%, it will receive an “alert” by the NPCI. The same alert will also be sent to the third-party app’s payment service provider bank. Both the entities must “acknowledge” the alert.

Level 2: A second alert will be sent to the app and the bank if the UPI app’s market share is between 27.1-30%. At this point, they will have to provide “evidence” of actions that they have taken to restrict their market share under the mentioned threshold.

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Level 3: If and when the UPI app’s market share exceeds 30%, NPCI directs the app and its bank to stop the onboarding of new customers. In addition, they will have to provide an undertaking to the NPCI that they are working on meeting the threshold.

The UPI players that already had a market share of more than 30 per cent, namely Google Pay and PhonePe, before the regulation came into effect this year, have two years to comply with the policy. The NPCI will review their compliance on a half-yearly basis from January 2022 onwards.

PhonePe is the leading UPI service in the country as of now, with a market share of close to 40 percent. Right next to it is Google Pay with an almost similar share of monthly UPI transactions in India. Both the services will have to take measures to decrease this market share within the next two years. Others like Amazon Pay, WhatsApp Pay and more can still aim for a larger share.

Meanwhile, UPI players will have to ensure that transactions of existing users are not declined.

There is also a provision of exemption in the new SOP, wherein NPCI can exempt a player from a complete ban on onboarding new members, even if they exceed the market share cap. In such a case, the UPI service provider will be asked to moderate the onboarding of new customers immediately. They will also have to present a plan to correct the non-compliance to NPCI within five working days from the date of notification.

The move was taken to “address the risks and protect the UPI ecosystem” from the monopoly of a single player.