The National Payments Corporation of India (NPCI) has recently announced significant regulatory changes aimed at reducing the dominance of existing players in the Unified Payments Interface (UPI) ecosystem and increasing competition.
These changes, which include lifting restrictions on WhatsApp Pay and postponing the implementation of a market share cap for UPI apps, underscore the NPCI’s commitment to create a fairer digital payment landscape in India, and ensuring equal opportunities for all participants, India TV News reported.
Lifting restrictions on WhatsApp Pay
One of the most significant announcements is the lifting of the 100 million user cap on WhatsApp Pay, allowing Meta to expand the service to the entirety of its 500+ million user base in India, and strengthening its presence in India’s booming digital payment market.
WhatsApp Pay is the payment feature of the widely popular messaging platform that allows users to send and receive money directly within the WhatsApp app.
It facilitates secure peer-to-peer transfers, as well as payments for goods and services by integrating with digital payment systems like UPI in India or by linking to credit and debit cards in other countries.
In India, WhatsApp Pay was initially introduced in 2020 with a 40 million user cap. By November 2022, that user cap had been raised to 100 million.
These restrictions were aimed at ensuring that the platform could manage the demand of India’s massive digital payment ecosystem while maintaining security and performance standards, the Financial Express reported. They also sought to prevent market monopolies in India’s UPI ecosystem.
The new extension will provide WhatsApp with ample time to solidify its position in India’s competitive fintech landscape. WhatsApp Pay’s massive user base and seamless integration with the popular messaging platform position the platform as a solid challenger to established players.
The timing is also advantageous for Meta, which recently launched its generative AI product, Meta AI, in India.
Integrated into popular apps including WhatsApp, Facebook, Messenger, Instagram, and meta.ai, the AI assistant aims to help users with various tasks across different contexts, such as organizing outings, planning trips, solving academic problems, creating professional emails, and generating creative content.
Challenges ahead
While this regulatory shift opens new opportunities, WhatsApp Pay faces significant hurdles in capturing market share in India’s payment landscape.
According to Deepak Abbot, a fintech founder and former executive at payments startup Paytm, WhatsApp Pay currently has less than 7-8 million active UPI users out of 100 million registered users. This implies that removing the user cap alone may not be enough to significantly boost its market share.
Furthermore, Abbot notes that only 100 million of the 360-375 million UPI users are responsible for the majority of payment volume (65%). This suggests that users have most likely already chosen their payment app of choice, an entrenched behavior which makes capturing market share a notable challenge.
Postponing the market share cap
Along with lifting WhatsApp Pay’s user cap, the NPCI has deferred a proposed rule to limit any single app’s share of UPI transactions to 30%. Initially planned to take effect in 2024, the deadline has now been extended to December 31, 2026, providing temporary relief to dominant players.
Walmart-backed PhonePe and Google Pay currently lead India’s UPI market, controlling over 85% of transactions. PhonePe has an estimated 47.8% share, while Google holds a 37% share.
UPI is a real-time payment system developed by the NPCI to facilitate seamless, instant, and secure money transfers between bank accounts. The system allows users to link multiple bank accounts to a single app, enabling person-to-person and person-to-merchant transactions without sharing sensitive information. It’s available 24/7 and supports features like QR code payments, bill payments, and utility services with minimal or no fees.
Introduced in 2016, UPI has become the backbone of digital payments in India, handling over 15 billion transactions monthly. The government is now taking steps to expand the reach of UPI beyond national borders, allowing Indian consumers and businesses to make and receive payments internationally.
Presently, UPI is live in seven countries, including key markets such as UAE, Singapore, Bhutan, Nepal, Sri Lanka, France and Mauritius.
Featured image credit: edited from freepik