NPCI extends UPI market cap deadline by 2 yrs

What’s in today’s article?

• Why in News?
• National Payments Corporation of India (About, Products)
• Unified Payment System - about, features, benefits, transaction statistics
• News Summary

 

Why in News?

• The National Payments Corporation of India (NPCI) has extended the deadline for Unified Payments Interface (UPI) to meet the market cap deadline of 30% to December 31, 2024.
• The earlier deadline to meet the market cap norms was December 31, 2022.

 

What is National Payments Corporation of India (NPCI)?

• NPCI is an umbrella organization for operating retail payments and settlement systems in India.
• It is an initiative of RBI and Indian Banks’ Association (IBA) under the provisions of the Payment and Settlement Systems Act, 2007.
• The objective of NPCI is to create a robust Payment & Settlement Infrastructure in India.
  • For this, NPCI was incorporated as a “Not for Profit” Company.

 

What is Unified Payments Interface (UPI)?

• UPI is a system that powers multiple bank accounts into a single mobile application (of any participating bank).
• It does so by merging several banking features, seamless fund routing & merchant payments into one hood.
• In other words, UPI is an interface via which one can transfer money between bank accounts across a single window.
• UPI was launched in 2016, by the National Payments Corporation of India (NPCI).

 

What are the features of UPI?

• Immediate money transfer through mobile device round the clock 24*7 and 365 days
• Single mobile application for accessing different bank accounts
• Hassle free transactions as customers are not required to enter the details such as Card no, Account number, IFSC etc. and thus helping in financial inclusion.

 

What are the benefits of UPI?

• For Banks
  • A universal application for recording transactions;
  • A single click Two Factor authentication;
  • Safer and more secure; Enables easy transactions;
  • Unique Identifier
• For Merchants
  • Easier fund collection; In-App Payments (IAP)
  • No risk of storing the customer's virtual address;
  • Tap customers not having credit/debit cards
• For Customers
  • Single application for accessing various bank accounts;
  • Round the clock availability;
  • One can easily raise a complaint from the mobile app directly;
  • Use of Virtual ID is secure

 

UPI Transaction: Statistics

• As of November 2022, the unified payment interface (UPI) transactions included:
  • of Banks live on UPI - 373
  • Volume of transaction - 7,309.45 million
  • Value of total transaction - 11,90,593.39 Cr.

 

Background:

• In November 2020, the NPCI issued guidelines capping the share of transactions handled by a third-party application providers (TPAPs) at 30% each.
  • TPAPs refer to the Application Programming Interface (API) designed in UPI exclusively for banks.
  • These are either standalone applications or applications that add functionality to an existing parent program / system.
  • In the financial space, third party apps are often connected to a banking application to provide a variety of services.
• The norms aimed to reduce any single-point failure risk by ensuring that UPI volumes do not get concentrated in the hands of a few players.
  • In March 2020, when Yes Bank was placed under moratorium, PhonePe had to work overnight to switch banks as its transactions were handled by UPI.

 

News Summary

• Payment apps PhonePe and Google Pay have received a breather, with the NPCI giving them two more years to comply with guidelines on volume caps.
  • Flipkart-owned PhonePe and Google Pay have 47% and 33% market share respectively.
• If NPCI enforced the caps immediately, it would result in UPI transactions shrinking dramatically. Hence, it has extended the deadline for two years.

 

Criticism of guidelines on volume caps

• Analysts protested the idea because there is no way for any market participant to reduce their own market share without actively denying service to the end customer.
  • E.g., PhonePe has a market share of 47%. To reduce UPI market share to 30%, it would be forced to deny UPI payment services to crores of Indians.
• As per the guidelines, the burden is on other existing and new UPI players to invest more time, effort & money to increase their own UPI market share.
• Failing that, the organic market share of participants in the UPI industry will not change significantly, and NPCI will have to keep extending the market cap indefinitely.

 

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Q1) What are some digital payment methods?

Some of the digital payments method in India include Banking card, USSD, UPI Aadhar enabled payments, mobile wallets, NEFT, IMPS, debit cards, credit card, and BHIM App.

 

Q2) Which country adopted the UPI?

NPCI International Payments Limited (NIPL) has signed a deal with Singapore-based Liquid Group to enable UPI QR-based payments in ten countries including Japan, South Korea, Thailand, Philippines, among others. Besides, nations such as France, Bhutan, Nepal, Malaysia,Oman, UAE, and the United Kingdom have also adopted the state-backed UPI.

 

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