India’s mobile payments landscape may be set for a major shake-up as the country’s payments regulator, the National Payments Corporation of India (NPCI), is poised to decide whether to impose a cap on the market share of leading players like Walmart’s PhonePe and Google Pay. The decision, expected as early as Monday, could reshape how the nation’s billion-plus population transacts money digitally.
At the heart of the matter is the Unified Payments Interface (UPI), a payment system backed by over 50 retail banks, which has revolutionized how Indians make payments for everything from groceries to rideshares. Processing over 13 billion transactions monthly, UPI is one of the largest and most widely-used digital payment networks globally.
It has now proposed to enforce a rule to restrict any company to handling no more than 30% of all UPI transactions. The proposal was first made in 2020 and will be significantly impactful on PhonePe, as it processes 47.8% of all UPI payments, and Google Pay, as it processes 37.1%. The two are the clear market leaders, and such a restriction would mean significant changes to their business models and market strategies.
Uncertainty around this proposed rule has complicated plans by PhonePe for a public listing. The company, valued at $12 billion and having such a strong backer as Walmart, had been eyeing an IPO. However, co-founder Sameer Nigam has been very categorical that PhonePe cannot list until there is clarity on the regulatory front. According to him, a 30% market share reduction would devalue the firm and make investors uncertain about the prospects of the firm going forward.
The regulatory decision also has wider implications for other fintech startups trying to capture a share of India‘s rapidly expanding digital payments market. If there are restrictions on PhonePe and Google Pay‘s user acquisition or transaction volume, it might open up opportunities for emerging players.
According to sources, the NPCI might delay the enforcement of this market share cap once again or probably increase the limit to 40%. The regulator has already pushed back the deadline multiple times, from January 2021 to 2023, and now to 2025. The agency has been in talks with various stakeholders, weighing the impact of its decision on both competition and the consumer experience.
This situation underscores India’s delicate balancing act between fostering technological innovation and maintaining market competition. UPI has been a cornerstone of Prime Minister Narendra Modi’s push to digitize the Indian economy and reduce cash dependency. However, capping the market share of dominant players would be one of India’s most significant regulatory interventions in its tech sector, which has seen major investments from global giants such as Walmart, Google, and Meta.
As India’s digital payments ecosystem continues to evolve, all eyes will be on the regulator’s decision, which could have far-reaching consequences for both established and emerging players in the market.
