UPI Duopoly and Market Vulnerabilities

UPI Duopoly and Market Vulnerabilities

News:
UPI has grown rapidly, handling 80% of India's digital transactions (₹20.60 lakh crore in August 2024 alone). Despite this success, concerns about market concentration have emerged.

• Key Concern – Duopoly of PhonePe and Google Pay:
• PhonePe and Google Pay control over 85% of UPI transactions.
• Paytm, the third player, holds just 7.2% market share.
• The dominance of these two foreign-owned Third Party App Providers (TPAPs) creates significant market risks.

Major Risks Identified:

1.     Systemic Vulnerability:

o    If PhonePe or Google Pay experiences service outages, it could disrupt a vast majority of UPI transactions.

2.     Reduced Competition and Innovation:

o    New players face high entry barriers, leading to less innovation and competition.

3.     Foreign Dominance:

o    With Walmart (PhonePe) and Google (GPay) owning these apps, India risks foreign control over critical digital payment infrastructure.

Regulatory Measures and Challenges:

• In 2020, NPCI capped TPAP market share at 30% of UPI transactions.
• However, the implementation deadline was extended, allowing PhonePe and Google Pay to retain dominance (48.36% and 37.3% market share, respectively, as of August 2024).
• Recent reports suggest NPCI might increase the cap to 40%, further entrenching existing players.

Way Forward:
Encouraging Indian TPAPs and fostering a level playing field is crucial to ensuring UPI's resilience, innovation, and continued public trust.