There are over 70 apps in India’s UPI market, but the market is predominantly led by only two apps – Google Pay and PhonePe. Together, these two UPI apps account for nearly 90% of the market, leaving the rest for other UPI apps only to fight for a tiny share of the market.
In November 2020, NPCI sensed the strengthening duopoly of just the two third-party application providers (TPAP), and it was quick to impose a 30% cap on the number of UPI transactions each UPI TPAP can process. The idea was to restrict any one single app from enjoying absolute dominance and let other apps in the ecosystem have equal opportunity to grow. NPCI labelled it “too risky” as it was not in the best interest of any country to let one or two apps have access to all financial habits, preferences and financial health of hundreds of millions of people.
Interestingly, even after over three years, the mandate is yet to come into effect! This has helped Google Pay and PhonePe strengthen their duopoly in the Indian UPI market. The latest report indicates that the duopoly is bound to get stronger as NPCI is considering extending the December 2024 deadline.
By the end of 2020, when NPCI first tabled the Volume Cap proposal, UPI apps were processing over 2.2 billion transactions monthly. Google Pay, PhonePe, and Paytm, together, accounted for a little over 90% of India’s UPI market. Fast-forward to April 2024, and the number of UPI transactions per month has gone up to 13.3 billion, amounting to 90% of India’s Rs 19.64 trillion. However, the combined market share of PhonePe and Google Pay has reached nearly 90%.
According to Reuters sources, NPCI is in no mood to restrict any app from establishing and enjoying a monopoly. The quasi-regulator plans to extend the deadline of imposing 30% volume cap for another two years.
Experts believe that due to the absence of MDR (Merchant Discount Fee), fintech firms are not as excited about investing in the UPI ecosystem as they used to be a few years ago. Since UPI transactions are currently free, firms are bound to look at it only as a customer-acquisition tool for other offerings on its app. The Zero MDR has almost killed the interest of new ecosystem players.
This has paved the way for existing UPI apps to strengthen their market presence further. The recent debacle of Paytm has helped PhonePe and Google Pay greatly, and both companies are in no mood to let go of the opportunity without any significant gain. As a considerable number of Paytm UPI users are confused and rather sceptical, Google Pay and PhonePe have amplified their marketing activities to lure those UPI users of Paytm. The declined UPI transaction volume on Paytm app in the last two months hints the same.
As a result, PhonePe’s market share reached an all-time high of 48.31 in April 2024. On the other hand, Google Pay also accounted for 37.6% of India’s UPI Market in April 2024. Paytm’s market share continued to decline in April also, and settled with just 9.4% of the market.
PhonePe and Google Pay processed a whopping 11.5 billion transactions in April 2024.
The growth in the number of UPI transactions in India is primarily led by PhonePe’s constant efforts to make UPI payment easier for users. The No-Pin feature for low-value transactions is one such example where users don’t have to go through the hassle of entering the PIN and wait for the PIN verification.
Google Pay, on the other hand, is constantly luring more users with rewards and coupons offered on each transaction. This has helped the app to record a higher number of transactions with improved average transaction value (ATV) and strengthen its position in the market.
This is not the first time that NPCI has extended the deadline. After announcing it in late 2020, the regulatory body extended it twice by the end of 2024. If the sources of Reuters are to be believed, the extension of two more years will give PhonePe and Google Pay a free hand to cement their domination in the market as the number of monthly UPI transactions in India is expected to double in the next few years.
Experts believe that leading UPI apps will strike gold once a fee is levied on each transaction. After the general elections, the fintech companies are expected to approach NPCI to discuss the possibility of introducing MDR on UPI transactions. And, if that happens, even a negligible transaction fee will attract significant revenue, given that UPI is all about a number game.
