India delays UPI market share cap deadline by 2 years

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The National Payments Corporation of India (NPCI), responsible for regulating retail payments and settlement systems in the country, has postponed the implementation of the market share cap for the widely used Unified Payments Interface (UPI), extending the deadline by another two years.

Previously, NPCI had set a deadline of end-2024 to enforce a 30% market share cap for companies processing payments using UPI. Extending this deadline will likely benefit mobile payment platforms like Walmart-backed (NASDAQ: WMT) PhonePe and Google Pay (NASDAQ: GOOGL), which are currently the two most popular apps for making UPI payments in India. This is the second time NPCI has extended the deadline.

“Considering various factors, the timeline for compliance of existing TPAPs who are exceeding the volume cap, is extended by two (2) years i.e. till December 31, 2026,” NPCI said in a statement. TPAPs, or Third-Party Application Providers, are organizations that provide applications or platforms that allow users and merchants to send and receive UPI payments.

According to NPCI’s compliance mandate, digital payment firms were not to exceed a 30% share of the transaction volume processed through India’s widely used UPI. Initially set to take effect by the end of 2024, this mandate will now be enforced starting December 2026. The idea is to mitigate concentration risk in the market and ensure both user and system security.

Despite the entry of new players, Google Pay and PhonePe remain the two most popular apps for making UPI payments in India. Other key players include fintech companies like Paytm, Navi, Cred, and Amazon Pay (NASDAQ: AMZN). 

Google Pay and PhonePe now have another two years to bring down their market share in UPI to 30%. As of November 2024, PhonePe held a 47.8% share of UPI payments, while Google Pay had 37%.

UPI is expected to surpass 171 billion transactions in 2024, marking a 45% growth compared to the previous year—an impressive increase given the already high transaction volume. The platform recorded approximately 117 billion transactions in 2023.

UPI, already the most popular digital payment method in India and an example of effective Digital Public Infrastructure (DPI), is likely reaching a saturation point. However, the federal government and the central bank have been pushing hard to boost their usage across the globe. 

In 2025, UPI may expand to another four to six countries. So far, UPI has expanded to the United Arab Emirates (UAE), Peru, Mauritius, Sri Lanka, Singapore, France, Bhutan, and Nepal. 

To promote UPI payments, the Reserve Bank of India (RBI) amended the framework for small-value digital payments in offline mode, raising the transaction limits for UPI LITE. UPI LITE is a payment solution designed for low-value transactions, operating within the existing UPI ecosystem protocols for mobile phones, ensuring compliance, commonality, and system acceptance.

“The offline framework has been updated and the enhanced limits for UPI Lite shall be ₹1,000 ($11) per transaction, with ₹5,000 ($58) being the total limit at any point in time,” RBI said in December. 

UPI LITE is seen as a customer-friendly solution, allowing low-value transactions without relying on a remitter bank’s core banking systems in real time while still providing adequate risk mitigation.

Additionally, the RBI authorized small finance banks to offer pre-sanctioned credit lines through UPI, broadening credit availability on the platform.

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