As the January 1, 2023, deadline nears for implementation of the 30 per cent market share cap rule, giant third party Unified Payments Interface (UPI) app providers — Walmart-owned PhonePe and Google Pay command over 80 per cent market share by volume — fear huge disruptions in their business operations.
Consumers too fear being de-boarded or taken-off of the platforms if the regulator, RBI/National Payments Corporation of India (NPCI), does not relent and extend implementation of this rule.
In November 2020, NPCI issued a circular to all participating members in UPI on volume cap for Third Party App Providers (TPAPs). The circular mentioned that in view of the growth in UPI transaction volumes, NPCI has analysed the risks in the UPI ecosystem.
To address the risks and protect the UPI ecosystem, the circular mandated that Payment Service Providers (PSPs) and TPAPs should ensure that the total volume of transactions initiated through the TPAPs should not exceed 30 per cent of the overall volume of transactions processed in UPI during the preceding three months (on a rolling basis).
The cap was to come into effect from January 1, 2021. The existing TPAPs (that is, those that were live as on the date of the circular) who are exceeding the cap will have a period of two years from the aforesaid date to comply with the same in a phased manner.
A detailed standard operating procedure (SOP) in this regard by NPCI was to follow. If the deadline is not rolled over and volume caps kick in, they will have just over three months to de-board users from the platforms and cut down transaction volumes. Such actions are likely to cause great inconvenience to consumers as they would be forced to migrate to other platforms.
This would be a highly undesirable outcome as UPI started growing exponentially only after third party service providers (fintech start-ups) began providing UPI services through their innovative apps and features, unlike the initial phase when bank owned UPI apps provided the services.
Although concentration in digital markets, unlike the brick and mortar economy, is amplified vastly due to network effects, using such a heavy policy instrument for curbing concentration goes against the grain of economic reforms.
The Competition Act, 2002 itself is an example of this paradigm change in public policy from the erstwhile Monopolies and Restrictive Trade Practices Act, 1969, whereby focus shifted from curbing monopolies to promoting competition.
Blunt policy instruments
In this change in economic policy approach, moving back to the era of capping market share through blunt policy instruments harms consumer choice and competition and innovation led by fintech start-ups. The move is simultaneously likely to slow down UPI growth. Even the risk of concentration appears misplaced as the market is characterised by presence of other players who are backed by equally big digital behemoths such as Paytm, Amazon Pay, WhatsApp Pay, Mobikwik et al.
Competition watchdog should waste no time in taking up the issue as part of its advocacy role with NPCI and impress upon it to have a re-look at the circular to promote competition in markets.