It would be inaccurate to call retail payments on India’s paramount United Payments Interface (UPI) rail a full-fledged duopoly, but Google Pay and Walmart-backed PhonePe do dominate this market with a combined 86% market share. PhonePe currently has a 48.3% share of UPI retail payments, while Google Pay has 37.6%. Paytm has a share of about 9%. No other company even has a full 1% share of the UPI market.
This market dynamic is not new. The digital payment ecosystems of Google Pay and PhonePe have long dominated UPI to varying degrees. The biggest difference several years ago was that their positions were reversed. It was Google that had the largest share, followed by PhonePe.
Paytm used to have a somewhat larger share of UPI payments, but has suffered since the Reserve Bank of India (RBI) effectively forced the shutdown of its payments bank for alleged compliance failures. In late 2023, before the crackdown, Paytm had a 13.1% share of the UPI market, so the regulatory penalty has arguably been the primary factor in reducing its market share by almost 31%.
In mid-April, several media outlets reported that NPCI executives plan to meet with representatives from CRED, Flipkart, FamPay and Amazon, among other players, to discuss how UPI transactions on their respective apps could be boosted. This development comes following the RBI expressing “displeasure” to the NPCI over Google Pay and Phone Pe’s hegemony in the market, according to TechCrunch.
There are a few key factors that could influence the outcome. First, Indian lawmakers in February urged the government to support “domestic” fintech firms rather than Big Tech. However, Google Pay and PhonePe are more like hybrids than foreign entities and are popular with Indian consumers. In fact, Google Pay launched in the subcontinent in September 2017 and has been a key player in its payments digitization evolution. For its part, PhonePe, though having the backing of Walmart, is an Indian company now registered in India following its corporate relocation from Singapore.
Second, even if Indian regulators wanted to make good on their proposed policy to restrict monthly UPI market share to 30%, they still have no smooth way to implement the policy. They cannot in good faith ask Google Pay and PhonePe to stop adding new users as it would be detrimental to the companies, Indian consumers and businesses and the broader fintech ecosystem.
To their credit, regulators seem cognizant of this. “The market forces have to play out such that this percentage is more evenly divided. We will not be interfering in the market process to ensure the 30% cap that in any case is an NPCI requirement,” RBI governor Rabi Shankar said at a February press conference.
A better idea would be to promote more market competition. The NPCI and RBI are reportedly mulling incentives to help fintechs grow their UPI market share. While that idea might be appropriate for startups, companies like Amazon and WhatsApp, which are struggling with UPI payments, are well capitalized and do not need special regulatory treatment.
It also is worth asking if UPI should dominate retail payments in India indefinitely. How about introducing greater competition when it comes to the rails? We don’t expect it to happen anytime soon, but it is still worth considering.
