India gets jittery as non-banking companies dominate payment transactions

There might be a cap on each company’s share of total UPI transactions.

Source: Unsplash

In a closed-door meeting held last week which was led by National Payments Corporation of India (NPCI), the umbrella organisation for operating retail payments in India, and attended by banks including a select few payments companies, the idea of imposing a cap on Unified Payment Interface (UPI) transactions on individual payment entities was toyed with.

UPI is a real-time payment system which instantly transfers funds between two bank accounts on a digital platform.

If the said cap is imposed it could pose a huge threat for private payment companies such as PhonePe, Google Pay, and Paytm that has dominated UPI transactions, pushing traditional banks off the charts. To be sure, the UPI based transactions on private payment companies are powered by traditional banks, but users prefer using the platform of private companies rather than banks’ mobile app.

NPCI wants to evenly distribute the UPI payments amongst all its partner banks. As of March 2019, there are 142 banks live on UPI, compared to 21 banks when the payments system was launched three years ago. At present, a major part of the UPI transactions is concentrated with Yes Bank, Paytm Payments Bank, State Bank of India, ICICI Bank, HDFC Bank, and Axis Bank.

This August saw a record of 918 million UPI transactions totalling transactions worth USD 21.4 billion, according to NPCI. Citing industry sources, a local media said Flipkart-owned PhonePe led the UPI transactions for the month of August with 342 million transactions, followed by Google Pay’s 320 million and Paytm’s 157 million.

The monopoly by these top three non-banking players has worried NPCI and it has sought to impose a cap on each company’s share to not exceed 33% of all UPI transactions, as revealed in a report by local paper Economic Times on Thursday. The main concern of NPCI is that these companies offer payment services in India without any regulatory licence.

The discussions are at a preliminary stage and a consensus has not yet been reached by all the parties involved. According to sources, a modus operandi has to be figured out to implement the new restrictions without inconveniencing the customers. There were also discussions on the lines of limiting the number of transactions customers can do per day, which industry experts opine will not be easy to implement.