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Monday, November 30, 2020

Unified Payments Interface: 30% cap done to ‘protect ecosystem’ but may end up being an own goal

A senior executive at a fintech firm said banks were also concerned about the load that a sudden rise in transaction volumes could put on their systems.

Written by Pranav Mukul | New Delhi | November 7, 2020 1:06:54 am
In its circular issuing the new guidelines, NPCI said in view of recent growth in UPI transaction volumes, the umbrella body for digital payments has analysed the risks in the UPI ecosystem, following which the cap was introduced. (Representational)

The National Payments Corporation of India (NPCI)’s decision to cap the number of Unified Payments Interface (UPI) transactions by any one third-party app provider at 30 per cent of total volumes may have been done “to address the risks and protect the UPI ecosystem”, but players in the ecosystem have said the move could disincentivise platforms from on-boarding customers of a lower ticket size, and, in effect, could thwart the efforts to accelerate digital payments. The NPCI, which is yet to issue the SOP for the newly introduced restrictions on transaction volumes, is learnt to have met stakeholders on Friday to discuss the issue.

In its circular issuing the new guidelines, NPCI said in view of recent growth in UPI transaction volumes, the umbrella body for digital payments has analysed the risks in the UPI ecosystem, following which the cap was introduced. An e-mail query sent to NPCI, seeking details of its risk assessment of the UPI ecosystem on the basis of which the new norms were brought in, went unanswered.

The idea for a 30 per cent cap on UPI transaction volumes was first brought up in a meeting of the NPCI’s Steering Committee on UPI last year, where red-flags of rising dominance with non-bank third-party app providers like Google Pay and Walmart’s PhonePe were raised. As of October, these two players are learnt to together have around 80 per cent of transaction volumes in UPI on their platforms.

Sajith Sivanandan, business head, Google Pay and Next Billion User initiatives, India said: “Digital payments in India is still in its infancy and any interventions at this point should be made with a view to accelerate consumer choice and innovation. A choice based and open model is key to drive this momentum. This announcement has come as a surprise and has implications for hundreds of millions of users who use UPI for their daily payments and could impact the further adoption of UPI and the end goal of financial inclusion.”

The steering committee comprises 13 banks including State Bank of India, ICICI Bank, HDFC Bank, Citibank, Axis Bank, Yes Bank, in addition to payments banks like Paytm Payments Bank and Jio Payments Bank. The committee also has representation from Google Pay, PhonePe and MobiKwik.

A senior executive at a fin-tech firm, who is aware of these discussions, pointed out that there was also a growing concern about the eventual rollout of WhatsApp Pay, which could have close to 400 million users from the day it was allowed to go live. Just hours after NPCI issued the 30 per cent cap guidelines on Thursday, it allowed WhatsApp to go live on its UPI-based payments service with a maximum of 20 million users. The executive also alluded to the fact that banks were also concerned about the load that a sudden rise in transaction volumes could put on their systems. This particularly assumes significance given that the technical decline rate, or the failure percentage of UPI transactions because of deficiency at the end of the banks or NPCI, has gradually increased in the last 10 months.

The guidelines stipulate any entity not exceeding 30 per cent of the total transaction volume to be in compliance effective January 1, however entities exceeding the said market share have been given time till 2023 to comply. The cap will be calculated on the basis of total volume of transactions processed in UPI during the preceding three months on a rolling basis.

“We have been building our products with a vision of scale but now the NPCI asks us to not scale up beyond a point…while at this point it is business as usual for us, it is difficult to say what impact this could have on our consumers till we know what the SOPs are,” the executive said.

Meanwhile, PhonePe said there was no risk of any UPI transaction on its platform failing. “In fact NPCI’s circular categorically says that the 30 per cent market share cap does not apply to existing TPAPs like PhonePe until Jan 2023,” Sameer Nigam, founder and CEO, PhonePe, said.

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