UPI Dominance: The Increasing Role of PhonePe and Google Pay in India's Digital Payments
Posted: Fri May 31, 2024 10:45 pm
With the introduction of Unified Payments Interface (UPI), which has completely changed the way millions of people make transactions, India's digital payments ecosystem has experienced a seismic shift in recent years. With the introduction of UPI, a new era of smooth, cashless transactions has begun. Gone are the days of getting toffees instead of change. Concerns exist, meanwhile, over the growing hegemony of two key actors in this transition: PhonePe and Google Pay.
The launch of UPI was a critical turning point in India's transition to a digital economy. Due to its easy-to-use interface and real-time transaction capabilities, UPI gained popularity fast and is now the preferred payment method for millions of people. To leverage this trend, third-party application providers (TPAPs) like as PhonePe and Google Pay came up with creative solutions that made online payments easier and expedited peer-to-peer transactions.
The Rise of UPI Leaders
PhonePe and Google Pay have come out as leaders in UPI transactions, accounting for a remarkable 82% of volume and 88% of total value, despite the widespread use of TPAPs. The Reserve Bank of India (RBI) noted in its policy paper that systemic risks are raised by this concentration. The risk of single-point failure arises from depending too much on a small number of participants.
The National Payments Corporation of India (NPCI) implemented a volume cap, restricting the market share of TPAPs beyond 30%, in response to growing concerns. But since the date for compliance has been repeatedly postponed, PhonePe and Google Pay have had more time to establish their superiority. The RBI has advocated for actions to promote a more competitive environment and voiced dissatisfaction with the NPCI's management of the duopoly.
The duopoly's negative effects on India's digital payments ecosystem are being reduced. In an effort to expand market diversity and support UPI transactions on other platforms, NPCI is collaborating with fintech firms. The RBI is also looking into incentives to help new players and improve competition. Levelling the playing field to promote innovation and benefit customers is the goal.
Worldwide efforts are being made to promote UPI, even if PhonePe and Google Pay still have a dominant position in the domestic market. There is potential to increase cross-border payments with the introduction of digital currencies issued by central banks (CBDCs) and the internalization of domestic payment systems. A competitive and inclusive payments ecosystem is becoming more and more necessary as India's digital economy grows.
The dominance of Google Pay and PhonePe in India's UPI payments business highlights the necessity of proactive efforts to promote competition and inspection by regulators. Even if these platforms have been crucial in promoting the adoption of digital technology, innovation and sustainable growth depend on creating an even playing field. The future of payments in India will be shaped by the need to strike a balance between regulatory control and market dynamics as the country navigates its digital transformation.
So, which one of these apps you are using for your UPI payments as default?
