The digital payments space in India, specifically UPI payments services, is about to undergo a major restructuring. The National Payments Corporation of India (NPCI) has made it official that a new limit will apply as of January 1, 2021 requiring that no third party application provider (TPAP) can exceed more than 30% of the total volume of UPI, or Unified Payment Interface, transactions. This will affect gamers like PhonePe, Google Pay, Paytm, and Mobikwik, as well as new entrant WhatsApp Pay, to name a few. NPCI believes this is to protect the UPI ecosystem as it expands and to address risks.
But how will the limit be calculated? NPCI says that the 30% limit will be calculated based on the total volume of UPI transactions that were processed in the previous three months. This will be done continuously. They also say that any existing player who is currently over the cap amount will have a two-year period to comply, on a staggered basis. Right now, PhonePe and Google Pay will be hit the hardest as both players are tightly completing around 40% of each of UPI’s total transactions. These guidelines will apply to all UPI players, including Amazon Pay, Mi Pay, Samsung Pay, Truecaller, and more.
According to data from the National Payments Corporation of India, UPI transactions recorded the transaction mark of Rs 207 crore (2.07 billion) in October. These transactions are worth as much as Rs 3.3 lakh crore. There has been a steady increase in UPI transactions, with total UPI transactions of Rs 180 crore completed in September being valued as high as Rs 3.29 crore and Rs 161 crore in August. This steady increase in UPI transactions is due to a variety of factors, including more online purchases and payments being made as people stay indoors due to the coronavirus
pandemic, the holiday shopping season, and also recent online sales on various shopping platforms including Flipkart and Amazon. UPI is one of the digital payment methods, including credit and debit cards, as well as network banking and mobile wallets.
Earlier this month, digital payments platform PhonePe had confirmed that they had now crossed the 250 million user mark, with 100 million monthly active users and logged 2.3 billion app sessions in October. This comes at a time when digital transactions are at an all-time high. PhonePe says that in October they recorded 925 million transactions on the app, while in September there were 750 million transactions. The digital platform is recording strong figures from Tier II and Tier III cities in India, with over 70% of transactions coming from users in those cities. PhonePe says it saw 835 million UPI transactions in October, which translates to a market share of more than 40% of total UPI transactions for the month.
What the NPCI notification doesn’t clarify at this point is what will happen in the event that a TPAP hits and then crosses the 30% limit. “NPCI will issue a detailed standard operating procedure (SOP) in this regard in due course,” they say.
At this time, it is unclear how payment apps, including Google Pay and PhonePe, plan to meet the guidelines, as these two apps will have the most to lose with the new cap implementation coming in at the start of the new year. . Options available to you to comply with the guidelines include limiting new subscriptions based on transaction participation on an ongoing basis, or limiting person-to-person transaction volumes. However, it is not yet clear how, if at all, these two methods can be implemented.
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