Late in 2020, the NPCI surprised the fintech sector with the announcement of a market share cap on the volume of UPI transactions through each TPAP (Third Party App Providers). This was introduced with the aim to prevent any particular TPAP to create a monopoly on the volume of UPI transactions. However, how effective would this cap on UPI transactions be in promoting healthy competition in the industry?

As per the circular that announced the NPCI’s new policy, as of 1st January 2021, no TPAP is allowed to exceed 30% of the total volume of UPI transactions in the country. Furthermore, any existing TPAPs that cross 30% (Google Pay and PhonePe) would be allotted a time of two years to comply with the new rule.

Additionally, on 25th March 2021, the NPCI also released a Standard Operating Procedure (SOP), enumerating the guidelines that must be adhered to by every TPAP to stay within the allowed 30% cap.

However, seeing as the NPCI’s own app, BHIM is one of the competing TPAPs that is affected by these new guidelines, experts have raised concerns about the motion being in direct conflict with the Competition Act, 2002.

These new guidelines do not negatively impact BHIM (Bharat Interface for Money), the NPCI’s own UPI app, which holds a much lesser market share compared to other leading TPAPs. In fact, the new policy may actually help increase the number of UPI transactions done through BHIM.

This can be recognized as “abuse of dominance” under the Competition Act. As per Section 4 of the Competition Act:

(1) No enterprise or group shall abuse its dominant position.

(2) There shall be an abuse of dominant position 4 [under sub-section (1) if an enterprise or a group]:

(a) directly or indirectly, imposes unfair or discriminatory

(i) condition in purchase or sale of goods or service; or

(ii) price in purchase or sale (including predatory price) of goods or service.

This abuse of dominance by the NPCI is bound to create an anti-competitive impact on the fintech sector, consequently affecting the growth, innovation, and quality of services offered to the users.

Once reaching the 30% market share cap, the TPAPs would see no reason to compete with each other, resulting in a lack of innovative vigour as well as a possible decline in the user experience and quality of customer service offered.

This may, in turn, affect the user experience in sectors that rely heavily on the UPI infrastructure, from online shopping and online bill payments to online gaming platforms and betting sites that run on digital transactions.

Additionally, the implementation of the volume would potentially mean that many users may have to switch from their existing TPAPs to new applications. Especially for users that are habituated to using one of the two biggest market players – Google Pay and PhonePe – the cap could potentially mean being kicked out of using their preferred UPI app.

To lower the number of transactions on their platform, these larger TPAPs may even have to put in place internal caps on the number of transactions done by a user, in order to lower their market share to the prescribed 30%.

Regardless of where the dice roll, the impact on the user experience will be certain and undeniable. Let’s just hope that the market share cap doesn’t spell out even more failed UPI transactions for the rest of us.