NPCI Issues SOPs for UPI Apps: How Will This Affect You?

UPI payment providers will not be permitted to process over 30 percent of transactions done via UPI network.

NPCI will limit the third party app’s ability to process more than 30% of the total volume of UPI transactions.

(image: Shruti Mathur/The Quint)

National Payments Corporation of India (NPCI) has issued new guidelines for third party digital payment providers such as Google Pay, PhonePe, etc in light of limiting the UPI transactions of these platforms to 30 percent of total transaction volume.

This means that popular UPI payment providers such as Google Pay, PhonePe and Paytm will not be permitted to process over 30 percent of transactions done via UPI network.

According to NPCI, UPI transactions will only increase in the due course. Thus, the regulating body wants all the payment players – small or big – to gain an equal opportunity to grow their volumes further.

NPCI Introduces Alert System

NPCI will alert the payment platforms in case the app reaches the threshold of 30 percent. This will be implemented in three phases.

• When a payment platform reaches a market share of 25-27 percent, NPCI will immediately send a notification to the platform via email or letter.
• In case the platform reaches 27-30 percent, a second alert will be pushed but this time the Payment Service Provider (PSP) will have to furnish proof regarding steps implemented towards market cap compliance.
• On crossing the 30 percent mark, PSPs and their partner banks will have to stop onboarding new users with immediate effect. However, NPCI in a statement said that it may offer exemption to players, based on justifications provided.

“Upon breach of threshold(s), basis request by third-party app provider (TPAP) through their PSP (partner) banks, there will be a provision to exempt the players to some extent when the volume cap is reached. Such exemption may last maximum up to 6 months unless specifically further extended,” NPCI said in a statement.

How Will Small Players Benefit?

NPCI issued these guidelines to ensure the ‘prevention’ of the establishment of a monopoly by a single company. With the implementation of the new guidelines, small payment platforms will also be granted equal opportunity to increase their consumer base.

Indian payment giant Paytm told The Economic Times that this is a welcome move and the guidelines will ensure that UPI payments don't become dependent on any player.

“We are the leading payments provider in the country as we enable our users with all digital methods including UPI. NPCI decision will ensure that UPI payments don't become dependent on any player. We believe that implementation guidelines are clear and practical”.

What About Big Players?

Currently, Google Pay and PhonePe dominate the market share accounting for more than 85 percent market share, followed by Paytm with a 14 percent market share and Amazon Pay with less than 2 percent.

Raising concerns over the new model, Shilpa Mankar Ahluwalia, partner and head of Fintech at the leading law firm Shardul Amarchand Mangaldas & Co told The Week that the new guidelines will slow down payment apps’ customer acquisition which will automatically lower its market share of payments.

“Customer acquisition has become a critical aspect of the digital payments sector, the real revenue opportunity is from being able to customise and offer not just payments but other financial products for customers. This volume cap circular seriously threatens this model,” she added.

How Will This Move Affect You?

New users won’t be able to access UPI services of a payment platform if it has been alerted thrice and crosses market share of more than 30 percent.

Instead, they will see a message that reads – “Dear user, as per NPCI rules any UPI app with more than 30% market share cannot onboard new customers until their market share goes down. Currently, <App name's> UPI market share is <XYZ>% so unfortunately, you'll have to wait a while before you can access our UPI services. We apologise for the inconvenience and promise to notify you as  soon  as  NPCI  allows  us to onboard you again.”