India to delay payments market cap, helping Walmart-backed PhonePe, Google Pay

Mumbai: India will again delay caps on market share for a popular digital payments method, two sources told Reuters, benefiting Google Pay and Walmart-backed PhonePe as the authorities prioritise growth over concerns about market concentration.

The National Payments Corporation of India (NPCI), the quasi-regulator, will extend by as much as two years a year-end deadline to cap at 30 per cent the market share of any company processing payments via the Unified Payment Interface (UPI), the sources with direct knowledge of the matter told Reuters.

PhonePe's share of UPI payments has risen to 48.3 per cent from 37 per cent in April 2020, while Google Pay's share has declined to 37.4 per cent from 44 per cent, according to NPCI data. The two processed a combined 1,150 crore transactions in April, the data showed.

NPCI and Google Pay declined to comment. PhonePe did not respond to an email seeking comment.

India launched UPI in 2016 but barred companies from charging for the instant digital payments service in an effort to promote online transactions and reduce the use of cash in Asia's third-largest economy.

Because they cannot charge for it, India's banks and others like Meta-owned WhatsApp and Amazon Pay have not pushed UPI-based payments aggressively, leaving authorities worried about a concentration risk.

While their apps do not earn money from the payments, PhonePe and Google Pay have been able to use their UPI customer base to sell services such as loans and insurance.

NPCI, which has a regulatory mandate from the central bank, announced the 30 per cent cap in 2020 but later extended the deadline by two years to the end of 2024.

The deadline will have to be extended again, said one of the sources, as it is not possible for PhonePe and Google Pay to reduce their market shares without hurting UPI payments growth.

A final decision on the extension will be communicated closer to the deadline, said the sources, who asked not to be identified because they are not allowed to speak to the media.

NPCI had hoped for more competition when WhatsApp was permitted to offer UPI-based payments in February 2020, but the company had just 0.2 per cent market share as of April.

Paytm, with the third-highest share, has experienced a decline in payments processed through its platforms after regulators placed curbs on a group entity.

Payment firms want the market-share cap removed, asking NPCI to let them charge for UPI payments to encourage competition, said an official at a payment company.

The government will decide whether to allow firms to charge for UPI payments, the two sources said, but one said NPCI does not favour removing the share cap.

The volume of UPI transactions rose 49.5 per cent in April from a year earlier, less than the 54 per cent rise logged March.

The central bank met on Tuesday with industry executives to brainstorm on ways to expand the UPI user base, which was about 30 crore users and 5 crore merchants late last year, according to the most recent data.