The Indian payments landscape is undergoing a significant shift, with the National Payments Corporation of India (NPCI) taking proactive steps to address the growing concerns of smaller players in the UPI ecosystem. Amidst the looming threat of Apple Pay, NPCI is accelerating the rollout of its tokenisation layer, UPI Meta, to ensure that UPI payments remain competitive and convenient for users. However, this move has sparked a heated debate among smaller UPI apps, who fear that UPI Meta will further entrench the duopoly of PhonePe and Google Pay.
A Race Against Time
NPCI's urgency to launch UPI Meta is understandable, given the increasing competition from tokenised credit cards and the impending arrival of Apple Pay in India. The ability to store cards securely on merchant apps and utilise biometric authentication for one-click checkout flows is narrowing UPI's traditional edge in speed and convenience. As a senior executive working with a UPI app noted, 'Several banks have launched biometrics for card payments. Now, card payments are as fast as UPI. The rewards structure and offers are often better than UPI, and this will likely entrench cards as the preferred method for high-value online payments.'
The Birth of UPI Meta
UPI Meta, or UPI Checkout, is a game-changer for online UPI payments. By allowing customers to save their UPI account/handle in a merchant app and set it as their default payment method, UPI Meta aims to make online UPI payments as seamless as the offline experience of scanning a QR code. This innovation addresses the current limitation where merchant checkout pages display all payment methods, including cards, UPI, wallets, and net banking, with varying offers. By setting a default payment method, customers can bypass the need to repeatedly enter CVV details, making payments faster and more convenient.
The Apple Pay Factor
The looming launch of Apple Pay in India has added another layer of complexity to the situation. Apple's seamless integration of credit cards with its devices and the use of tokenised cards for biometric payments could potentially lure premium UPI users away from the UPI ecosystem. As one source noted, 'The Apple product is likely to have a tight and seamless integration with credit cards for all payments using Apple devices. The payments are likely to be enabled by tokenised cards that can facilitate biometric payments.'
Duopoly Concerns
The introduction of UPI Meta has caused unease among smaller UPI apps like Amazon Pay, Navi, and super.money, Cred, and others. They fear that UPI Meta will favour PhonePe and Google Pay, which already dominate the UPI ecosystem with 45% and 33% market shares, respectively. In a meeting with NPCI on April 28, these smaller players complained that existing power users are more likely to save PhonePe or Google Pay as their default UPI account, thus entrenching their position in the market.
NPCI's Market Cap Rule
NPCI has been trying to reduce the duopolistic nature of UPI, dominated by American-owned entities, through a market cap rule that suggests no single UPI app should have more than 30% share. However, the deadline to impose this rule has been extended twice due to implementation challenges. The concentration risk of UPI becomes even more significant as the platform has become the de facto digital payments method for the country, accounting for around 86% of all digital payments.
The Way Forward
NPCI's decision to launch UPI Meta is a strategic move to counter the growing competition and ensure the long-term viability of the UPI ecosystem. However, it has sparked a heated debate among smaller players, who fear that UPI Meta will further entrench the duopoly of PhonePe and Google Pay. As NPCI continues to navigate this complex landscape, it must find a balance between innovation and fairness to ensure that the UPI ecosystem remains competitive and accessible to all players.
In my opinion, the introduction of UPI Meta is a necessary step to address the growing concerns of smaller players in the UPI ecosystem. However, NPCI must be mindful of the potential unintended consequences and work towards creating a level playing field for all participants. The future of UPI depends on the ability to foster a healthy and competitive environment that benefits both users and merchants alike.
