Urgent Implementation of UPI Market Share Cap Needed in India

The dominance of PhonePe and Google Pay, holding over 85% of India's UPI market share, raises concerns about systemic risks, fraud, and a potential duopoly, necessitating urgent action by the National Payments Corporation of India (NPCI).

NPCI's proposed 30% market share cap aims to create a more level playing field, fostering competition and minimizing the impact of any single player's failure, thereby strengthening India's digital payment infrastructure.

While critics argue that a market cap might stifle innovation, the current situation incentivizes the two dominant players to maintain their status quo, rather than fostering innovation through unique offerings; a cap would encourage differentiation and enhance the overall ecosystem.

NPCI has developed a Standard Operating Procedure (SOP) with a rolling three-month calculation to monitor transaction volumes, issuing alerts at 25-27% and 27% of the cap to ensure compliance and prevent sudden disruptions, including provisions for temporary exemptions.

Despite the SOP and extended deadlines for compliance (until December 31, 2024), the market share of the two major players remains largely unchanged, highlighting the need for quicker implementation of the cap or alternative approaches like tiered caps based on user adoption rates to encourage new entrants and maintain market stability.