With just a few months remaining before the December 2024 deadline, the implementation of a 30% market share cap on UPI apps appears increasingly unlikely. Industry experts, as reported by ET, have indicated that the proposed cap may not come into effect, which has led several new entrants to revise their plans and strategies.
Government’s Stance and NPCI’s Proposal
The NPCI initially proposed the 30% market cap for third-party app providers in November 2020, with the goal of curbing the dominance of major players like Google Pay and PhonePe. This cap was seen as a way to encourage competition and allow new players to enter the UPI market. The deadline for compliance was originally set for December 2022 but was extended to December 2024.
Despite this extension, the government has yet to officially inform the NPCI of its position on the cap, leaving the future of the proposal uncertain. New entrants in the UPI market, who had previously held back on significant investments due to the anticipated cap, are now left in a state of limbo as they await further clarity.
Industry Reactions and Adjustments
Several new UPI players have reportedly been informed informally that the 30% market cap might not be enforced. As a result, these companies are adjusting their growth and investment strategies accordingly. A senior executive from a smaller UPI app mentioned that the absence of the cap could make it difficult for new entrants to gain traction in a market dominated by Google Pay and PhonePe.
The dominance of these major players continues to raise concerns about market concentration. Although UPI transactions have grown significantly, with a 3.95% month-on-month increase to 14.44 billion transactions in July 2024, the market remains heavily skewed toward the top two players. PhonePe and Google Pay lead the market, while Paytm, the third-largest player, has seen a slight decline in its transaction volume.
UPI Market Growth
The UPI ecosystem has witnessed substantial growth over the past year. In July 2024, UPI transaction volume reached INR 20.64 lakh crore, a 2.8% increase from June 2024 and a 35% year-on-year rise. Despite this overall growth, the market share remains concentrated, with PhonePe and Google Pay accounting for the majority of transactions.
Conclusion
As the deadline for the 30% market share cap approaches, the likelihood of its implementation appears slim. The lack of official communication from the government has left industry players uncertain, leading to adjustments in their strategies. While the UPI market continues to grow, the dominance of a few key players remains a concern, potentially stifling competition and limiting opportunities for new entrants.
