Mumbai: Plan of India’s National Payments Corp. (NPCI) to limit the app to just over a third of total transactions on the UPI fast payments platform by the end of 2026 is a tough call, regulators and financial sector experts said.
The idea first emerged in 2020 when the retail payments umbrella body, NPCI, announced that it would impose a 30% cap on Unified Payments Interface (UPI) volumes. The plan was to counter the risk of concentration, as the top two apps — PhonePe and Google Pay — already accounted for nearly eight in 10 transactions.
The UPI volume cap implementation date has been postponed twice since then, most recently from January to December 2026.
Glacial shifts
NPCI data showed that 82% of UPI transactions were processed through PhonePe and Google Pay in October, compared to 86% in the same period last year. According to industry insiders, the 400 basis point (bps) increase in market share for other UPI apps shows that others are catching up, but at an extremely slow pace.
Experts said the crux of the problem is the fact that the payments themselves do not generate any revenue as there is no merchant discount rate (MDR) for UPI payments from January 2020.
Key things
- Despite a 4% increase in the market share of smaller apps over the past year, PhonePe and Google Pay still dominate 82% of the UPI landscape.
- The lack of a discount rate for merchants is a major barrier to entry, as payments currently do not generate any revenue for providers.
- The Reserve Bank of India has publicly questioned the feasibility of a “hard cap”, noting that you cannot practically force a successful business to stop accepting customers.
- Domestic banks have largely backed out of the UPI app race, viewing it as a high-cost, zero-return venture since they already own customer data.
- Instead of a hard cap, experts suggest “soft” measures such as launching exclusive features on smaller apps and QR codes with multiple logos to help newbies remember the brand better.
MDR is a fee that a merchant pays to the bank, card network and point-of-sale provider for offline transactions and to payment gateways for online purchases.
“If you put a cap on market share, even companies that invest in UPI will stop putting in more money,” said a payments executive. “The problem now is that UPI players are not investing because they are not making any money and the only way to start the cycle is to bring back MDR, at least for bigger merchants.”
After reaching 20 billion in monthly volumes in August, it remained in range and stood at 20.5 billion in November, down 1% from October, according to NPCI data.
Emails sent to NPCI and Google Pay went unanswered.
A PhonePe spokesperson said it is virtually impossible to implement market share limits in UPI or other digital ecosystems. “Companies spend time and capital trying to grow their customer base. Asking the same companies to later start denying millions of customers critical services like UPI payments just to stay below the market share cap will erode trust in the same ecosystem we are all trying to grow together,” the spokesperson said.
Read also | NPCI extends deadline for meeting UPI volume limit by 2 years
The regulator also sounded pessimistic on the market capitalization issue. In a recent interview on MintAt the BFSI conclave, RBI Deputy Governor T. Rabi Sankar said “the fundamental issue is that it is difficult to implement”.
“How do you put a cap? Can you ask an entity that’s actively doing business to say you’re going to stop acquiring customers? How do you tell someone that when your transaction is 30% you’re going to stop transacting? You really can’t,” Sankar said.
Sankar believes the solution is to encourage others, and the regulator is taking steps to ensure more and more people join the fight.
Interestingly, Bharat Interface for Money (BHIM), developed by NPCI, has recently gained some market share, increasing to 0.62% of total transactions in October from 0.2% in October 2024. The Economic Times announced in July that the increase in transaction volume was the result of a user interface redesign, increased marketing spend by NPCI and targeted incentives.
Consumer habits
The industry is skeptical about the arrival of a third player that can take significant volumes away from the incumbents that dominate the market, especially due to the lack of financial incentives to invest.
The problem is changing consumer habits. Once users start using a UPI app, it usually becomes their default for payments and there is little incentive to switch unless something goes wrong.
Another problem is the way QR codes are displayed. An official at one of the top ten UPI apps explained that most QR codes carry the logo of the market leaders because those customers were the first to adopt those customers. Although these codes have since been interoperable, many people tend to only use the app corresponding to the logo on the QR code.
The solution would be to use QR codes with multiple logos to encourage consumers to use other apps and improve brand recall, they said.
“I’m not sure if there’s an easy mechanism to get another player in the UPI race unless there’s a commercial angle,” said Parijat Garg, an independent fintech expert.
Read also | How combining UPI with the EU TIPS system could support cross-border payments
According to Garg, it only makes sense for a third or fourth player to come in and compete for more market share if there is commercial value involved. “There are apps that have the reach and the capital to do it, but why would anyone do that without any payment revenue?” Garg said.
There is also a school of thought that believes domestic banks have missed an opportunity to push UPI into their apps.
In fact, private sector lender Axis Bank is the only commercial bank to feature in the top 10 UPI apps list, according to NPCI data. Garg said banks may have let the UPI opportunity go as it did not make business sense without generating revenue. Unlike UPI apps that require transaction data, big banks already own a significant number of them and there is not enough incentive to promote their own apps, he added.
Network effect barriers
While the government is offering 0.15% incentive for UPI payments up to ₹2,000 for small merchants, payouts are split between banks and these apps, with those with higher volumes and market share benefiting more. These economic incentives allow the top players to invest more in merchant sign-ups, marketing and acquisitions, which further hurts the smaller players. In October 2025, the India Fintech Foundation (IFF) proposed a regulatory cap to limit the total share of subsidies received by an individual player.
This is also why foreign payment companies have been reluctant to invest in domestic retail payments on a large scale or fund smaller third-party application providers (TPAPs).
Read also | UPI AutoPay issues hit subscription market; businesses are turning to card payments
Legal experts have said that payment ecosystems are driven by strong network effects. Once users begin to gravitate to a platform for reliability and scale, it’s not practical or consumer-friendly to limit further onboarding.
“As an alternative to a blunt cap, regulators could consider softer interventions such as incentivizing interoperability, differentiated pricing or settlement efficiency and calibrated regulatory support for smaller players to compete on quality of service rather than sheer scale,” said Siddartha Karnani, partner at King Stubb & Kasiva, Advocates and Attorneys.
Another industry suggestion was to launch the new UPI features exclusively with smaller TPAPs – something NPCI started doing recently with the BHIM app – to encourage users who want to use these features to use different UPI apps.
