Parliamentary Concerns on Dominance of Foreign-Owned Fintech Apps in UPI Space

A recent report by a Parliamentary panel highlights the dominance of foreign-owned fintech apps, particularly PhonePe and Google Pay, in India's digital payments landscape. The panel expresses concerns over their significant market share in the Unified Payments Interface (UPI) space.

Market Share Statistics

The report underscores the overwhelming presence of PhonePe and Google Pay in the UPI market, with respective market shares of 46.91% and 36.39% as of October-November 2023. Together, these two entities accounted for over 80% of total UPI transactions in 2023.

Implications of Dominance

The dominance of PhonePe and Google Pay poses challenges for competition and regulatory oversight in the fintech sector. PhonePe, in particular, consistently records a significant share of monthly UPI transactions, indicating its strong market position.

Regulatory Scrutiny on Paytm

As regulatory scrutiny tightens around Paytm, the third-largest player in the market, the dominance of PhonePe and Google Pay is expected to further consolidate. This regulatory environment favours the entrenched position of these two players.

Advocacy for Indigenous Players

The Parliamentary panel advocates for the promotion of indigenous players in the fintech sector. It suggests that regulating Indian fintech platforms would be more feasible for the Reserve Bank of India (RBI) compared to overseeing foreign entities operating across multiple jurisdictions.

Concerns Over Money Laundering

Highlighting instances of fintech companies being exploited for money laundering, the panel emphasizes the importance of supporting local Indian players in the fintech space. Promoting indigenous players could enhance regulatory oversight and mitigate risks associated with illicit activities.

Regulatory Measures and Proposals

The report aligns with ongoing discussions and proposals aimed at addressing the dominance of PhonePe and Google Pay in the UPI ecosystem.

Proposal for Market Share Cap

Recent discussions within government circles have considered imposing a 30% ceiling on the market share of UPI apps. This proposal aims to diversify the market and reduce the influence of dominant players.

Previous Considerations and Deadlines

The idea of capping UPI transactions was initially proposed in November 2020 by the National Payments Corporation of India (NPCI). However, the plan was deferred due to the surge in digital payments during the pandemic. Subsequent deadlines were extended, with the current deadline set for December 2024.

RBI's Perspective

The Reserve Bank of India has also recognized the issue of duopoly in the UPI space, with top officials expressing concerns in the past.

Efforts to Address Duopoly

RBI has indicated its intention to address the duopoly of PhonePe and Google Pay, acknowledging the need for a more diverse and competitive UPI ecosystem.

Continued Growth of UPI

Despite concerns over dominance, UPI continues to witness remarkable growth, with record-breaking transaction volumes in January 2024.

Significance of UPI

The resilience and popularity of UPI underscore its importance as a fundamental component of India's digital payments infrastructure.

In conclusion, the Parliamentary panel's report underscores the need for regulatory measures to promote competition and support indigenous players in the UPI space, while also recognizing the continued growth and significance of UPI in India's digital economy.

-Prisha Jaiswal