UPI, the mobile-based payment system has become the most popular mode of digital payment in India. As per The National Payments Corporation of India (NPCI), over 10 billion UPI transactions are carried out every month in the country. The majority of these payments are processed through two particular fintech players, PhonePe and Google Pay.

Last December, around 82% of UPI payments were transacted through these two portals. This figure is now up at 86%, and everyone from industry heads to lawmakers are worried about this massive market dominance from the two fintech powerhouses.

The NPCI has recognized that this is indeed an issue, and has a plan in place to try and bring fairness to the UPI payments market. But the question is, will it actually work?

NPCI’s Response: To Push Domestic Fintech Players Ahead

Fintech is a bustling sector in India, and there are many fintech companies that provide their own UPI processing options. These include the likes of Paytm, Flipkart, Amazon Pay, Cred, etc. As per reports, the NPCI plans to hold a meeting with these fintech company heads to devise their market needs in order to increase UPI transactions through their individual portals.

One of the biggest banking bodies is the Central Bank of India, which is also behind the democratization efforts of the UPI space, simply placing a rule that limits the number of payments on Google Pay and PhonePe. Anyway it will not help on a large scale. Rather, what the industry really needs is innovative efforts from the other fintech players. 

This is simply because of the fact that the NPCI does not have the necessary technology to enforce a democratic space. Rather, the other fintech companies need to step-up their process and provide the people a reason to switch over to their UPI services.

Why Google Pay and PhonePe Thrive

The primary move that they should resort to is of course providing monetary incentives, but even that might prove insufficient. Google Pay burst on to the scene during India’s digital payments revolution and they provided a cashback on almost every transaction. This allowed the population to become reliant on the ‘Gpay’ app and most of them never bothered to switch over to another even when the cashback incentive was discontinued. Paytm, the biggest competitor to Gpay, holds a meagre 9% market share in UPI payments, despite similar incentives.

PhonePe on the other hand gained market dominance by arming shopkeepers and retailers across the country with devices that could be used to receive payments from customers. This innovatie move allowed them to own a sizable share in the UPI market.

Strategies for Domestic Players to Reclaim Market Share

Go Beyond Cashback: While initial incentives can attract users, long-term success requires a robust value proposition beyond just cashbacks.

Innovation is Key: Developing unique features and functionalities that cater to specific user needs is essential.

Building a Network Effect: Replicating PhonePe’s approach of empowering merchants with payment acceptance tools can create a network effect, attracting more users.

The Road Ahead

If the UPI space in India is to be truly democratized, then the rest of the fintech UPI service providers need to provide similar or new incentives; or build a new business model altogether like PhonePe. Although the central bank is reportedly providing backing to these fintech houses, the market share has not really shifted.

Does the NPCI have another means of tackling Google and PhonePe’s growing dominance in the ecosystem? Only time will tell.