NPCI Extends Market Cap Deadline for UPI Apps

NPCI Extends Market Cap Deadline for UPI Apps

Why in News?

The National Payments Corporation of India (NPCI) has extended the deadline for Third-Party App Providers (TPAPs) to comply with the 30% transaction cap on Unified Payments Interface (UPI) transaction volumes until 31st December 2026.

Key Points:

• Impact on Major UPI Players: This extension impacts major TPAPs like PhonePe and Google Pay, which together handle more than 80% of UPI transactions.

• Transaction Cap: The 30% transaction cap was introduced in November 2020 to mitigate concentration risks and ensure a balanced ecosystem in UPI transactions.

Compliance Requirement:

• Exceeding the Cap: TPAPs exceeding the 30% cap must halt onboarding new customers to comply with the rule.

• Based on Average Transaction Volume: The cap is determined based on the average UPI transaction volume over the past three months. TPAPs that have already exceeded this cap are given a grace period to comply, with phased reductions until the deadline in 2026.

Background:

• Initial Cap Introduction: The cap was first introduced in November 2020 to reduce risks of over-reliance on a few players in the UPI ecosystem.

• Deadline Extension: The deadline was extended in December 2022, with the current deadline being set for 31st December 2026.

NPCI:

• Establishment: NPCI was established by the Reserve Bank of India (RBI) and the Indian Banks' Association (IBA) under the Payment and Settlement Systems Act, 2007.

Third-Party App Providers (TPAPs):

• Role of TPAPs: TPAPs are non-bank entities that offer UPI-based financial services via mobile apps or platforms, acting as intermediaries between users and banks (referred to as sponsor banks). They are not part of banks or financial institutions.

Conclusion:

The NPCI's decision to extend the deadline for TPAPs to comply with the 30% transaction cap is aimed at ensuring a more equitable distribution of UPI transaction volumes, preventing the dominance of a few platforms. This move is significant for major players like PhonePe and Google Pay, as it impacts their expansion plans and user acquisition strategies.