Google Pay, PhonePe Affected by India’s move to limit digital payment providers

Global tech giant Google on Friday criticized India’s attempt to cap the proportion of transactions some digital payments companies in the country can make, saying it would hamper the country’s burgeoning digital payments economy.

The criticism from Google came after India’s flagship payment processor, the National Payments Corp of India (NPCI), said Thursday that third-party payment apps would not be allowed to process more than 30 percent of total government-backed transaction volumes as of Jan. 1 UPI framework (United Payments Interface) that enables seamless peer-to-peer money transfers.

The move is likely to slow the growth of payment services offered by Facebook, Alphabet Google and Walmartwhile the likes of Reliance step up Jio Payments Bank and SoftBank-Backed Paytm, which come with banking approvals.

According to NPCI, more than 2.07 billion UPI transactions were processed in October, with Walmarts PhonePe making up just over 40 percent of those transactions. Google Pay took a close second place. Competitors like Paytm and dozens of others shared the remaining 20% ​​stake.

Companies like PhonePe and Google that currently exceed the limit set by NPCI will be given two years to adhere to the new rules.

“This announcement comes as a surprise and affects hundreds of millions of users who use UPI for their daily payments. It could have an impact on UPI’s continued adoption and ultimate goal of financial inclusion,” said Sajith Sivanandan, business head, Google Pay. India said in a statement.

The new caps do not apply to Reliance’s Jio Payments Bank or Paytm, which have niche banking licenses and do not fall under the third-party apps category.

“This is somewhat in line with the overall theory of foreign gamblers versus Indians,” said a digital payments company executive who asked not to be named. “Why couldn’t the NPCI say that the upper limit applies to all players, why only to third party app providers?”

A Paytm spokesman said NPCI had taken the right steps to grow the UPI system.

“Capping the transaction volume for various payment apps will ensure that NPCI has compromised and diversified the UPI platform,” he said.

PhonePe is committed to ensuring that NPCI’s new rule does not disrupt services for its customers, said founder and CEO Sameer Nigam.

NPCI and Reliance did not respond to requests for comment.

Facebook blocked

The new rules were introduced when NPCI finally gave Facebook approval to launch WhatsApp payments in India, allowing the service to roll out to 20 million users.

While the long-belated approval is a relief for Facebook, the limited rollout prevents WhatsApp from making payments in its largest market of over 400 million users.

Still, the Menlo Park, California-based company on Friday welcomed approval that the combination of WhatsApp and UPI would encourage rural participation in the digital economy.

Ram Rastogi, digital payments strategist and former NPCI manager, said that NPCI’s move to limit transactions for any third party payment provider would encourage healthy competition.

“If only two technology service providers (PhonePe and Google Pay) capture about 80% of the market share, there will be systemic risks and NPCI’s move to set a limit aims to correct that,” said Rastogi.

The attempt to restrict some players comes at a time when Google is already under intense scrutiny in India, where it is facing at least four major antitrust challenges.

The restrictions are also intended to help regulators limit potential cybersecurity threats.

“It is important that there is more competition that makes the space less vulnerable and leads to better controls,” said Abizer Diwanji, India’s director of financial services at EY.

© Thomson Reuters 2020