Decision of UPI share limited to 30 percent was given in November 2022. Focus of this decision was to end duopoly of PhonePe and Google Pay, and they have already jointly made up ~86% of UPI market share if we talk about transaction volumes. Individually, both of these companies hold ~48.3% and 37.6% share, respectively.
As reported by Business Standard, UPI share limited to 30 percent decision is expected to be reviewed by the end of 2024. As at the timing of writing this article, deadline to bring such a change is unchanged i.e., December 2024.
In March, NPCI had a meeting with new UPI players and there was a discussion about how UPI can grow. In November 2022, NPCI proposed 30% volume cap on 3rd party application providers. The company went to ask UPI players to restrict market share to 30% over 2 years.
UPI in India
UPI transactions in India saw a strong 57% growth in volume and 44% increase in value in FY24 as against previous financial year. Coming to the growth prospects of UPI in India, External Affairs Minister S Jaishankar noted that country’s Unified Payments Interface (UPI) appears to be more successful as compared to any other country.
According to him, India continues to make UPI transactions worth INR 120 crore a month. In comparison, the US is making digital transactions to the tune of INR 40 crore per year.
In March 2024 alone, transactions exhibited a 55% growth in volume to 13.44 billion and 40% in value to INR 19.78 trillion against March 2023. This was the first time UPI transactions surpassed 100 billion and ended at 131 billion in single financial year in comparison to 84 billion in 2022-23.
Coming to the monthly data, in February 2024, transactions came at ~12.10 billion and INR 18.28 trillion, respectively. For the month of Jan 2024, it was ~12.20 billion and INR 18.41 trillion, when it comes to volume and value.
UPI share limited to 30 percent: Why so?
As discussed, with so much growth prospects and favourable factors, why NPCI wants UPI share limited to 30 percent? Well, is the question in everyone’s mind.
This move focuses in ensuring that UPI digital payments infrastructure does not suffer overload. Apart from this, this plan wants that few players don’t monopolise digital payments landscape. On the other hand, stakeholders of Indian digital payments landscape have presented their views as well.
They believe that move might prove to be detrimental in terms of maintaining comfortable user experience.
UPI has seen growth at a healthy clip in FY24. Evidently, growth in transactions came in at ~56% year on year in volume and ~43% year-over-year in terms of value. Players have seen a deeper entrenchment of UPI as Average Ticket Size (ATS) declined steadily. This means increased use of UPI for small ticket items.
ATS numbers were INR 1,471 in March 2024 in comparison to INR 1,623 in March 2023.
Dominance of G-pay and PhonePe
As mentioned, G-pay and PhonePe have ~86% of the UPI market share when it comes to transaction volumes.
Paytm Payments Bank, which appears to be a distant third company, is significantly behind. Apart from this, its market share declined post Reserve Bank of India’s decision of imposing restrictions on it in January. The next 2 companies, Cred and Axis Bank Apps, tend to have less than 1% each of market share.
Paytm processed ~1.23 billion transactions in March, exhibiting a fall from ~1.57 billion in January 2024. The firm was having 9% market share in UPI as at March this year.
Fintech firms are not making investments in UPI ecosystem. This is because transactions remain free and no merchant discount code (MDR) is levied. Large and big fintech firms invested and they are finding UPI as a tool to acquire new customers.
UPI has prospects to grow multi-fold. However, zero MDR has been restricting newer players to participate or for them to invest in the digital payments ecosystem.
Once this gets done, experts believe that market should be able to balance itself automatically Discussion regarding introducing MDR on the UPI transactions is expected to take place after general elections. In the prior year, NPCI launched interchange fee on prepaid payment instrument-based merchant transactions via UPI.