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India knows what it wants in digital payments, just not quite how to achieve it. Competition in the nascent and fast-growing industry is the aim: There’s no appetite for a China-style duopoly. As such, new rules will cap transactions facilitated by Alphabet’s Google, Walmart-owned PhonePe and others at no more than 30 per cent of total volume. Such crude policing is part of a difficult balancing act.
The country’s payments infrastructure is unique. Lenders and big technology companies have built digital banking apps atop an open access system called United Payments Interface. Its part of a not-for-profit organisation National Payments Corp of India championed by the central bank that’s trying to facilitate affordable payments. The result is real-time money transfers directly between bank accounts. UPI handled 1.8 billion retail transactions worth $44 billion in September, according to NPCI, and its design as a public good has won international praise.
Local operators gain
New rules unveiled last week challenge the premise of creating an open and level playing field. Transactions will be limited for third-party app providers but not those with various bank licences. This favours, whether intentionally or not, local operators such as Reliance Industries JioMoney and Softbank-backed Paytm.
Google Pay and PhonePe have the most to lose. NPCI does not provide figures for individual apps, but local media reports the duo account for almost 80 per cent of existing volume. Facebook-owned WhatsApp also will be curbed. It won approval to roll out payments, but to no more than 20 million users initially, or about 10 per cent of those sending messages on the app in India.
Debacle in China
Big questions remain over how the limitations will work in practice, but India has good reason to take pre-emptive action. The drive for financial inclusion and digital adoption will continue apace as poorer citizens trade in basic handsets for smartphones. Meanwhile, China is belatedly realising the costs of letting Alibaba and Tencent grow so large: Beijing has begun a painful and disruptive process of trying to curb their immense power. US regulators are also struggling to rein in tech titans. However crude India’s policing may be, it is at least trying to nip a clear problem in the bud.
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