UPI share to be capped at 30 percent: NPCI to review its decision by year-end, says report

The NPCI is likely to review its decision to implement a 30 per cent cap on the market share of payment players offering Unified Payments Interface (UPI) services by the end of 2024, reported Business Standard. 

As of now, the deadline to bring this change remains unchanged i.e., December 2024.

“There is still time for it. The 30 per cent cap on the transaction volume of payments players offering UPI services will be reviewed by the end of this year,” said a person, who requested he not be named. 

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In March, the NPCI met with new UPI players and discussed how UPI could grow. In November 2022, National Payments Corporation of India had proposed a 30 per cent volume cap on third party application providers. It asked UPI players to limit their market share to 30 per cent in two years.

Dominance of duo 

Two entities PhonePe and Google Pay, have nearly 86 per cent of the UPI market share in terms of transaction volumes, NPCI data shows. These two hold 48.3 per cent and 37.6 per cent share, respectively.

Paytm Payments Bank, which is the distant third, is way behind and significantly, its market share fell after the Reserve Bank of India (RBI) imposed restrictions on it in January this year. The next two, Cred and Axis Bank Apps, have less than one per cent each of market share. 

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Paytm processed 1.23 billion transactions in March, down from 1.57 billion in January 2024. The firm had a 9 per cent market share in UPI as of March this year.

UPI fees

Fintech firms are not investing in the UPI ecosystem simply because transactions are free and do not levy a merchant discount code (MDR). Large fintech firms invested and found UPI to be a tool to acquire new customers.

“UPI has the ability to grow multifold. However, zero MDR is restricting newer players to come in or for them to invest (in the ecosystem). Once that is done, the market should balance itself on its own,” one person was quoted as saying in the above-mentioned BS article.

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A discussion on introducing MDR on UPI transactions can be done after the general elections. 

Last year, NPCI introduced an interchange fee on prepaid payment instrument (PPI)-based merchant transactions through UPI. 

FY24 was the first time that UPI transactions crossed 100 billion to close at 131 billion in a financial year. There were 84 billion transactions in FY23. In March 2024, transaction volume grew 55 per cent to 13.44 billion. Value was up 40 per cent to ~19.