Unified Payments Interface (UPI) has revolutionized digital payments in India. What once was a time-consuming process of transferring money has now become instantaneous. Today, UPI transactions are accepted almost everywhere, from large retailers to small vendors in rural areas. However, as UPI has grown rapidly in the last seven years, it now faces a major challenge — the overwhelming dominance of two big players, PhonePe and Google Pay.
The Duopoly of PhonePe and Google Pay
The digital payments landscape is dominated by two companies: PhonePe and Google Pay, which together control around 85% of the market. PhonePe has a market share of 48.36%, while Google Pay holds 37.3%. This duopoly has created a significant imbalance in the UPI ecosystem, leaving little room for other competitors to thrive. Paytm, once considered a major competitor, has seen its position weakened after the RBI placed restrictions on Paytm Payments Bank.
What’s at Risk?
The heavy reliance on just two players in the UPI space presents a potential risk. If any operational issue or regulatory action affects either PhonePe or Google Pay, the entire system could be impacted. Given their combined hold over the UPI network, the consequences could be far-reaching, affecting millions of users and merchants across India.
Both companies, despite their significant roles in UPI’s success, are under foreign ownership. This adds another layer of complexity, as any disruption in these platforms could lead to dependency concerns. With over 15 billion UPI transactions recorded in September 2024 alone, and transaction values surpassing ₹140 lakh crore, the sheer scale of the issue is evident.
Lack of Progress in Market Share Diversification
In response to the growing imbalance, the National Payments Corporation of India (NPCI), which manages UPI, has taken steps to address the market concentration. In 2020, NPCI set a cap of 30% on market share for any one player in UPI transactions, with a two-year timeline for compliance. However, this deadline has now been pushed back multiple times, with the latest extension being until December 2024.
Despite NPCI’s efforts, there has been little movement from PhonePe or Google Pay to reduce their market share. Other players, like Amazon Pay and WhatsApp Pay, have tried entering the market but have been unable to make a significant impact. Even the government-backed BHIM app, which was launched to promote UPI, holds less than 1% of the market share.
What Lies Ahead?
The dominance of PhonePe and Google Pay in the UPI ecosystem continues to pose a challenge to market competition. While NPCI’s cap on market share is an attempt to create a more balanced playing field, its repeated postponements raise concerns about when real change will come. In the meantime, UPI’s success story remains closely tied to the performance and stability of these two major players.
