NPCI issues first standard operating procedure on UPI market cap

Third party application providers (TPAP) such as Google Pay, Paytm, and PhonePe finally have clarity on how to navigate the recently tabled market cap set by Unified Payments Interface (UPI) developer NPCI. 

The National Payments Corporation of India (NPCI) on Thursday released a nine-page standard operating procedure (SOP) to monitor the 30% market share cap for TPAPs in the UPI landscape. 

The total volume of UPI transactions, the SOP said, will be calculated basis the transaction data in the preceding three months, on a rolling basis. The formulae to compute UPI market share percentage of a TPAP is to divide the provider’s UPI transactions by total volume of UPI transactions.

“Currently with over 500 million smartphones, 1.2 billion Aadhaar users and 1 billion mobile phones, it is possible to increase the UPI user base to five times in the next three to five years, aspiring to achieve a billion transactions a day on this fully interoperable platform that UPI is,” the SOP said.  

NPCI has divided the 30% cap into three thresholds.

At 25% to 27%, the first alert to the TPAP and payment service provider (PSP) bank will be sent via email or letter, which the two must acknowledge.

At 27.1% to 30%, a second alert to the TPAP and PSP bank will be issued, after which the two are expected to provide evidence of actions taken in compliance to the volume cap.

Post 30%, TPAP and PSP bank must stop the onboarding of new customer and provide undertaking with regards to the same in order to achieve the compliance.

“Further, there will be a provision to exempt the players to some extent when the volume cap is reached, so that it does not create sudden disruption in the market. Such exemption may be for a limited time period of upto six months basis the request by TPAP through their PSP Bank upon breach of certain threshold(s). This decision to permit exemption will be decided by NPCI basis the merits of the case,” the SOP said. 

In November, NPCI said it will cap third-party UPI transactions at 30%, affecting over 50 apps, including Google Pay, Amazon Pay, PhonePe, and the recently launched WhatsApp Pay. The cap is applicable only for the transactions initiated from a TPAP UPI App (acting as payer) and not applicable for the recipient end, that is the payee TPAP end.  

In case of non-compliance, NPCI is authorised to penalise the concerned TPAP under the provisions of the UPI Procedural Guidelines, as may be issued from time to time, the SOP added. 

As the UPI ecosystem is subject to regulatory and ecosystem changes, the SOP will be reviewed at least once every six months. 

Incorporated as an initiative of the Reserve Bank of India (RBI) and Indian Banks' Association (IBA) in 2008, NPCI works as an umbrella organisation for operating retail payments and settlement systems in India. 

NPCI’s products include RuPay card, Immediate Payment Service (IMPS), UPI, Bharat Interface for Money (BHIM), BHIM Aadhaar, National Electronic Toll Collection (NETC Fastag), and Bharat BillPay.