Google and Walmart face growth hurdles as India caps payments transactions

Google and Walmart have a new challenge ahead of them as they race to expand the reach of their payments apps in India: They won’t be permitted to grow beyond a certain limit.

National Payments Corporation of India (NPCI), the body that operates the popular UPI payments infrastructure, said Thursday evening that it will enforce a cap to ensure that no single payments app processes more than 30% of UPI transactions in a month.

The payments body said the move is aimed at addressing the “risks” and “protecting the UPI ecosystem as it further scales up.” The change goes into effect in January 2021 but Google Pay and PhonePe will have two years to comply with the order in a “phased manner,” the body said. (NPCI also approved WhatsApp’s application to extend its payments service in India.)

UPI is a payments infrastructure built by large banks in India and is backed by the Indian government. It has become the most popular digital payments method in the country in recent years.

The cap of 30% will be calculated based on total volume of UPI transactions processed in the preceding three months, it added.

The move, described by an industry executive as the most absurd thing they have heard in months in India, will severely impact Google and Walmart, whose respective apps already process more than 35% of UPI transactions each.

In fact, Walmart’s PhonePe processed more than 40% of about 2 billion transactions on UPI network last month. Google commanded about 38% of the transactions.

Sajith Sivanandan, managing director and business head of Google Pay and Next Billion User Initiatives, said in a statement that the announcement has surprised Google. He added, “Digital payments in India is still in its infancy and any interventions at this point should be made with a view to accelerate consumer choice and innovation. A choice based and open model is key to drive this momentum. This announcement has come as a surprise and has implications for hundreds of millions of users who use UPI for their daily payments and could impact the further adoption of UPI and the end goal of financial inclusion.”

In a statement, Sameer Nigam, founder and chief executive of PhonePe, said, “We have reviewed the recent NPCI circular and want to assure all our customers and merchants that there is absolutely no risk of any UPI transactions on PhonePe failing. In fact NPCI’s circular categorically says that the 30% market share cap does not apply to existing TPAPs like PhonePe until Jan 2023. PhonePe remains fully committed to ensuring that there is no customer disruption caused by this circular.”

It remains unclear how any payments app will comply with this limit. Let’s say PhonePe or Google Pay has already processed about 650 million transactions in three weeks. Would it just switch off UPI payments on their app for the remainder of the month?

Today’s announcement is the latest headache for PhonePe, Google Pay, and Amazon Pay in India, which, despite amassing tens of millions of users to their UPI payments apps, have struggled to monetize it. UPI currently has no business model. At an event in Bangalore late last year, Sivanandan said current local rules have forced Google Pay to operate in India without a clear business model, and urged the government to allow them to make some money off their payments services.