The slowdown seen by Paytm, run by listed fintech entity One 97 Communications (OCL), has additional stoked these fears. If the third largest UPI cost app additional loses market share, there’s a excessive probability that the likes of PhonePe and Google Pay will profit, skewing the market share dynamics much more, business insiders mentioned.
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In February 2024, UPI processed 12 billion transactions. Out of this, PhonePe processed 6.1 billion funds (50%), Google Pay settled 4.7 billion (39%) transactions and Paytm processed 1.3 billion (10.8%). The fourth largest UPI cost app Cred simply processed 118 million UPI funds.
“The deadline for implementation of the 30% market cap is on the finish of this 12 months, however as of now there isn’t a readability on how this may be carried out,” mentioned a senior banker within the know. “As an alternative of specializing in a cap solely, we can also have a look at encouraging extra gamers to construct significant participation within the ecosystem.”
The newer entrants are ready for readability on NPCI’s stance concerning the 30% market cap earlier than they put money into rising the community.
Additionally learn | NPCI permits Paytm to turn out to be third-party utility on UPI with 4 banks
Uncover the tales of your curiosity
“There isn’t any doubt that the incumbents invested big cash to construct this community; now they are going to attempt to get the advantages of this too. it’s a hen and egg scenario,” mentioned a senior government at a third-party funds app on UPI.Nationwide Funds Company of India, which runs UPI, has already pushed the deadline for the 30% market cap by two years from January 2023 initially to the tip of 2024. However past some primary discussions nothing a lot has moved on that entrance but. Moderately than slowing down, the 2 massive gamers have pushed on with buyer acquisition.
ETtechET reported on March 5 that NPCI met smaller UPI apps like Groww and Cred to scout for tactics to advertise UPI funds by these platforms, however no concrete selections have been taken on the first assembly.
Emailed queries to PhonePe and NPCI went unanswered.
Additionally learn | Paytm disaster brings 30% market share cap plan again in focus
Lack of incentives
A number of business insiders ET spoke to mentioned that UPI is a low-cost buyer acquisition device, and given its an open structure, it’s comparatively simple to construct on prime of the protocol. So ideally there shouldn’t be any duopoly or monopoly on such a platform.
However the challenges round monetisation are inflicting fintechs to remain away, they mentioned.
Amrish Rau, chief government officer of Pine Labs, took to social media platform Linkedin not too long ago to level out that fintechs need to keep away from UPI due to ‘zero monetisation.’
“There are only a few such firms (simply two investing in UPI). And even these firms are investing as a result of they see different alternatives to monetise like on promoting or lending. Zero charges on UPI is killing competitors and resulting in sturdy duopoly,” he wrote.
Additionally, with the general funding local weather tightening up, startups are specializing in decreasing burn. So, most of those firms should not have an enormous advertising finances to drive incentives on UPI funds nowadays.
On the sidelines of the not too long ago held assembly of startups with the finance minister in New Delhi, the dominance of American companies or firms backed by them was put forth.
One other part of the business believes that the market in UPI is already taken, there are alternatives in credit score on UPI and cross border UPI funds, however the thesis there’s nonetheless not totally fashioned.
“There are startups attempting to construct credit score merchandise on UPI, however the query is will small retailers be able to pay for credit score transactions by a mode which is in any other case free for them,” mentioned Harsh Gupta, principal, Flourish Ventures, which has invested in Indian startups like M2P Fintech, Indifi, Kaleidofin.
Additionally learn | Paytm, PhonePe, Google Pay divided on UPI market share cap; authorities gained’t intervene
Regulator’s stand
The Reserve Financial institution of India is anxious about focus threat build up on UPI, particularly with American giants like Walmart and Google dominating the sector.
Whereas NPCI has the mandate to impose a 30% market share, the execution of the cap has not fructified.
“If these business gamers usually are not able to decelerate then maybe the regulator can consider some type of penalty,” mentioned R Gandhi, retired deputy governor with the RBI. “There is usually a mechanism by which platforms will be charged greater for transactions past the 30% threshold, this may slowly change the market dynamics.”
One other proposition will be to construct a cost aggregator sort system which may route transactions to a number of cost apps relying on particular person volumes, mentioned a senior banker quoted earlier. However the issue there’s that it provides one other hop for every transaction.
As an alternative of taking the route of penalties, Rohan Lakhaiyar, accomplice at consultancy agency Grant Thornton Bharat, believes they will create scale primarily based rules for systemically vital cost gamers.
“These above 30% market share will be put below greater scrutiny or regulatory requirements to make sure resilience and system integrity within the UPI ecosystem. Elevated compliance requirements might require them to rationalise progress to a tempo that justifies the incremental price of compliance” Lakhaiyar mentioned.
Additionally learn | Google Pay India indicators pact with NPCI for world growth of UPI
Nevertheless, some aver that focus threat is a misplaced concern.
“I feel we use one app out of behavior, not like a checking account, there aren’t any linkages of typical UPI apps to the opposite components of a client’s monetary world, comparable to investments, remittances and so on, if the necessity arises customers will make that shift to a different platform afterall everybody makes use of their financial institution’s cell banking utility which permits UPI funds,” mentioned Rajeev Agrawal, chief government officer, Innoviti Funds.
To chart the best way ahead one wants to grasp how the ecosystem landed right here. There isn’t any doubt that each PhonePe and Google Pay invested closely to develop the UPI ecosystem.
Whereas Google Pay made P2P funds enjoyable by gamification and scratch playing cards, PhonePe invested in a military of people that onboarded retailers by interoperable UPI QR codes.
Via 2018, 2020 and 2021, the leaderboard on UPI modified. Again in 2018, Paytm was essentially the most used UPI app. In 2020, Google Pay took the mantle. In 2021, PhonePe began racing forward of competitors and the hole has solely grown wider over time.
From round 55 lakh service provider funds within the March quarter of 2018, the Bengaluru primarily based agency processed 1,110 crore such funds within the December quarter of 2023.
“Paytm had a very talked-about pockets product which was income producing per transaction and constructed a sticky buyer base, so that they missed pushing UPI as a lot within the preliminary years,” mentioned the founder quoted anonymously earlier. “This price Paytm dearly and the market hole with Google Pay and PhonePe turned too large to bridge finally.”
It was solely in August 2019, that Paytm opened its QR code community for interoperable funds.
Focus threat or not, the debates round solely two gamers dominating crucial digital cost mechanism within the nation is gaining steam. And looking out on the early traits, if the sector regulator doesn’t stem the expansion traits now, the present timeline for the cap appears untenable.
