RBI discusses recurring payments, 30% volume cap with UPI ecosystem players

Mumbai

In a recent meeting with industry players from the UPI ecosystem, the Reserve Bank of India took up issues such as expanding the scope of UPI by focusing on more use cases such as recurring and international payments, UPI on credit cards and integrating UPI with the Open Network for Digital Commerce (ONDC) network.

The central bank, on May 8, said that it met industry leaders to expand the scope of UPI, increase the user base and to address challenges faced by ecosystem players.

The main discussion points included ways to reach out to potential users, both merchants and customers, especially in tier-II and beyond cities to expand the UPI user base. Further, the central bank reportedly urged sector players to explore more innovative and customised use cases for UPI, sources told businessline.

A major area of focus for the regulator seems to be recurring payments, which are currently restricted to auto-debits from bank accounts or mandates for repeated payments via cards.

“Usually, NACH is the feature which banks use which is based on either some physicality or net banking. The industry is now seeing a fair amount of acceptance for UPI e-mandates,” a source said, adding that this segment is growing really fast because it is does away with the need for physical infrastructure, is cheaper to set up and as is much easier for customers to set up.

Another discussion point was the expansion of UPI into other international markets, with a focus on smaller nations that don’t inherently have an organic payments infrastructure beyond the banking system. This poses an opportunity for India to grow the home-grown brand beyond national boundaries, as per the regulator.

UPI volume cap

RBI and ecosystem players also touched upon the impending deadline of December 2024 for implementation of the 30 per cent cap on volume of UPI transactions for individual Third Party Application Providers (TPAP) players.

While the central bank and NPCI are keen to have more TPAP players in the market in order to broad-base the dependence on any specific player, it seems unlikely that they will direct the two biggest players -- PhonePe and Google Pay to stop onboarding new customers.

Owing to this, the NPCI -- which is expected to review the deadline by the end of the calendar year might further extend the deadline for implementation or may even choose to do away with or increase the 30 per cent limit, sources said.

Given that UPI payments is currently not a monetarily lucrative business, industry players seem to have raised the need for incentivising smaller players or encouraging them to build monetisable businesses around UPI payments, as per sources.

On their part, customers too are more comfortable making payments via trusted and established players and are unlikely to transition to other players unless they are offered incentives such as cashbacks and rewards or specific and niche use cases catering to a certain segment of users.

The issue of the volume cap has again come to the limelight following the regulatory crackdown and subsequent winding down of Paytm Payments Bank, the third largest player in the UPI ecosystem.

As of April 2024, PhonePe has the largest market share of 49 per cent in terms of volume of transactions and 51 per cent in terms of value of transactions. Google Pay had a share of 38 per cent in volume terms and 35 per cent in value terms. The third largest player Paytm’s share stood at 8 per cent in terms of volumes and 6 per cent in value terms, significantly lower than 12.7 per cent and 10.3 per cent, respectively in January 2024.