WhatsApp, a Facebook subsidiary, recently launched its payments services in India. This move comes after the National Payments Corporation of India (NPCI) granted approval to the messaging app. Moreover, the NPCI has issued another directive limiting 30% of the total volume of transactions on Unified Payments Interface (UPI) for all third-party app providers, commencing from January 1st, 2021. UPI is a unique platform that consolidates diverse banking services and features into a single interface, transforming smartphones into virtual debit cards and enabling immediate bank-to-bank payments via a mobile number or UPI ID.
WhatsApp UPI in India
Using WhatsApp UPI, people can transfer money to any user with a UPI-supported app. India represents one of the most substantial markets for WhatsApp. The company started trialing its UPI-based payments system in 2018. Currently, it is poised to compete with established players such as Paytm, Google Pay, Amazon Pay, and PhonePe. WhatsApp is collaborating with five main banks in India, including ICICI Bank, HDFC Bank, Axis Bank, the State Bank of India, and Jio Payments Bank. However, not every user in India will have immediate access to this feature. This is due to the NPCI’s mandate to gradually increase WhatsApp’s UPI user base, starting with a maximum registered user base of 20 million.
Implications of the 30% Cap
The guidelines necessitate that an entity should not exceed 30% of the total transaction volume to maintain compliance. Entities exceeding the limit have until 2023 to comply. This cap will be calculated based on the total volume of transactions conducted on UPI during the preceding three months, on a rolling basis. NPCI introduced this cap after evaluating the risks in the UPI ecosystem due to significant transaction volume growth. The proposition for a 30% cap on UPI transaction volumes emerged from a meeting of the NPCI’s Steering Committee on UPI in 2019, spurred by concerns over increasing dominance by non-bank third-party app providers. By October 2019, Google Pay and PhonePe accounted for approximately 80% of UPI transaction volumes. Currently, NPCI is yet to issue a risk assessment of the UPI ecosystem, which prompted the new norms, along with the standard operating procedure (SOP) for the newly introduced restrictions on transaction volumes.
Concerns Regarding Rapid UPI Transactions Growth
Another concern is banks’ apprehensions about the abrupt increase in transaction volumes and the subsequent strain on their systems, especially following the introduction of WhatsApp UPI. This could potentially disincentivize platforms from onboarding lower ticket size customers, thereby potentially hampering efforts to accelerate digital payments.
About the National Payments Corporation of India
The NPCI, an umbrella organization for all retail payments systems in India, was established with guidance and support from the Reserve Bank of India (RBI) and Indian Banks’ Association (IBA). Its core objectives include consolidating and integrating existing multiple systems into a nationwide uniform standard business process for all retail payment systems and facilitating an affordable payment mechanism that benefits the common man across the country and drives financial inclusion.
Looking Ahead: Digital Payments in India
Digital payments in India are still evolving, and interventions should aim to accelerate consumer choice and innovation. A choice-based and open model is pivotal for maintaining this momentum. The 30% cap will inevitably affect hundreds of millions of UPI users who rely on it for their daily transactions, potentially impacting the broader adoption of UPI and the ultimate goal of financial inclusion.