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PhonePe and Google Pay have a clear duopoly in the UPI market and this, reportedly, has not sat well with regulators and lawmakers.

An ET report cited unnamed officials who said that regulators, lawmakers and several members of parliament are becoming wary of a strong duopoly in the market (that too of foreign-owned entities) and are likely to take the issue in the Parliament’s upcoming monsoon session and in meetings of relevant parliamentary panels.

UPI is undoubtedly one of the choicest payment modes in India. UPI apps such as PhonePe, Google Pay, Paytm and even WhatsApp Pay are becoming household names. Yet, despite over INR 10 Lakh Cr worth of transactions, PhonePe and Google pay together hold over 83% of the market.

It is noteworthy that PhonePe processed transactions worth INR 5.01 Lakh Cr in June this year, continuing its dominance in the space. Google Pay bagged the second spot, processing transactions worth INR 3.55 Lakh Cr in June. Further, Paytm recorded nearly INR 1.02 Lakh Cr worth of transactions. 

The top three payment platforms amassed a market share of 95.5% in the number of transactions. It had a 94.5% market share in the transaction value.

While Paytm’s market share is not an alarming issue, Walmart-backed PhonePe and Alphabet’s Google Pay own 30-50% of the market share. Thus, the National Payments Council of India (NPCI) is looking to discourage UPI’s duopoly by limiting the market cap to 30% per payment app. 

How Will The TPAP Restrictions On UPI Work?

The third-party applications’ (TPAP) restrictions will disallow the UPI apps’ customers to make payments through the app in case the 30% limit of the app breaches. Further, the respective UPI apps will have to inform users that they have exceeded the 30% limit and will only be available when NPCI allows.

If any UPI app reaches a market cap of 25%, it will receive an alert from NPCI. At 27%+, it will receive a second alert and thereby have to provide evidence of steps it will undertake to adhere to the 30% limit. 

Yet, several technical constraints remain unanswered, including the daily monitoring of transactions and steps that NPCI will undertake to ensure no disruption in user experience. Further, if an app has already breached the 30% mark for the previous months, how will a future restriction help the market?

According to a mandate in March 2021, NPCI provided the working module of the TPAP restriction, claiming that the limit will be calculated based on the total volume of transactions processed on UPI during the previous three months by a player on a rolling basis.

The deadline for the TPAP guidelines was initially January 2023, but since the market share is only ever increasing, the deadline is likely to be pushed. The monsoon Parliament session will likely also provide clarity on the extended deadline.

The monsoon session will meet from July 18 to August 13, 2022.