Google Pay raises concerns over UPI transaction cap; PhonePe assures users of uninterrupted service

Google Pay, a digital wallet platform owned by the search engine giant, has raised concerns over National Payments Corporation of India’s (NPCI) move to cap the volume of UPI-based transactions, saying it would negatively affect the adoption of digital payments in the country.

"Digital payments in India is still in its infancy and any interventions at this point should be made with a view to accelerating consumer choice and innovation. A choice-based and open model is key to drive this momentum. This announcement has come as a surprise and has implications for hundreds of millions of users who use UPI for their daily payments and could impact the further adoption of UPI and the end goal of financial inclusion," Sajith Sivanandan, business head, Google Pay and Next Billion User initiatives, India, said.

PhonePe, a payment system and digital wallet arm from Flipkart, reassured its users that the capping would not impact transactions on the platform.

"We have reviewed the recent NPCI circular and want to assure all our customers and merchants that there is absolutely no risk of any UPI transactions on PhonePe failing. In fact, NPCI's circular categorically says that the 30% market share cap does not apply to existing TPAPs like PhonePe until Jan 2023. PhonePe remains fully committed to ensuring that there is no customer disruption caused by this circular,'' Sameer Nigam, founder and CEO, PhonePe said.

Explained: The UPI cap, who it affects and why it is needed

Last week, the retail payments regulator capped the total volume of UPI-based transactions processed by all third party app providers (TPAP) to 30% of the total volume processed by the platform in the preceding three months, on a rolling basis. For example, if the average number of UPI transactions for January, February and March is 300, every TPAP can only process up to 90 transactions in April.

The ruling will eventually have an impact on all the 21 TPAPs listed on the NPCI website, including Google Pay, Amazon Pay, PhonePe and the recently-launched WhatsApp Pay.  NPCI has said that the order will come into effect from January 1, 2021, for new players. Incumbent TPAPs will get two years from January 2021 to comply in a phased manner.

The announcement comes at a time when UPI transactions by volume crossed the 2 billion mark in October.

PhonePe recently claimed it processed 835 million of the 2 billion UPI transactions. Google Pay and PhonePe together command around 80% of the total UPI transaction volumes. According to a TechCrunch report, Google Pay led the category for months, but lagged behind PhonePe this time with 820 million transactions. Paytm and Amazon Pay, on the other hand, saw 245 million and 125 million transactions, respectively, the report added.

This also comes in the light of RBI’s push to set up New Umbrella Entities which will create new retail payment solutions to counter NPCI’s dominance in the retail payments space. NPCI, a quasi-government body owns and operates UPI as well as RuPay Cards among other payment systems.