The tough fight for a slice of UPI

Battle for market share: In the streets of urban centers and rural India, one revolution has taken over, that has not only reshaped the way transactions are made, but also changed the way money is moved, and opportunities are unlocked.  At the forefront of this transformation stands PhonePe, Google Pay, Paytm and many other, digital payments giants who are having a sprint against time to command a significant share in the booming UPI market, where new entrants are leaving no stone unturned to shake up the positions of traditional players. 

According to the report by Phonepe and Boston Consulting Group, India's digital payments market is projected to soar to $10 trillion by 2026, with a significant portion of transactions expected to be digitised. According to the report, this rapid growth is fueled by factors such as increasing smartphone penetration, government initiatives promoting digital finance, and the rise of innovative platforms like PhonePe. 

Expanding UPI Market

The phenomenal expansion of the UPI market is visible in the numbers in January 2024, when the UPI transaction value increased by 42 per cent year-on-year, crossing the mark of Rs 18.41 lakh crore in January 2024. This exponential growth, accompanied by a 52 per cent increase in transaction volume to 1,220 crore highlights the UPI’s pivotal role in India’s financial transformation. 

But as the UPI ecosystem has expanded, more and more players are getting into the fray, and new entrants are eyeing to gain the UPI market share. Amazon Pay, a recent entrant in the ecosystem, who got the payment aggregator license in Feb 2024 is also targeting to increase its share in the UPI market. Recently, Amazon Pay CEO and VP, Mahendra Nerukar in an exclusive conversation with Republic Business said that that Amazon Pay which recently got the license of Payment Aggregator is eyeing the UPI share.

"For us growing UPI volume is important for a couple of reasons as it is the simplest way for a large set of customers to pay," the VP and CEO of Amazon Pay told Republic Business. He added further that apart from focusing on growing volume, the next focus area for Amazon Pay now is P2P which includes money transfers and scan pay. "P2P is where we have been a little late, that is where the team has invested a lot of energy, "Nerurkar said.  According to the National Payment Corporation, Amazon Pay has a 0.4 per cent share of the total UPI market. 

The UPI market is going through many ups and downs, with one of the leaders Paytm grappling with a regulatory clampdown by the apex bank. Paytm commands around 12 per cent share in the UPI market. With the decline in the share of Paytm, the duopoly of Google Pay and PhonePe is expected as PhonePe commands a 47 per cent share in the UPI market, followed by Google Pay at 37 per cent.  

Evading the Duopoly

In a bid to evade the duopoly, NPCI in December 2022 decided to cap the monthly market share at 30 per cent and extended the cap till December 2024. A few days back, NPCI had a meeting with small UPI platforms to help them raise their share in the UPI market. It's not only Amazon Pay that is eyeing UPI share, but recently Flipkart also unveiled the UPI payment system a few days back which is also striving to command a significant share in the UPI market. 

According to Industry Insider, in the highly crowded UPI payment market, Amazon Pay is silently eating the market by solving just one pain point. 

“With other UPI payment apps, the transaction would in many cases take a few minutes to complete. There are many instances when customers pay, but the merchant doesn't get a notification and maybe the transaction fails. This is faced frequently by cab drivers. Passengers would get away, but the drivers have lost money many times. Amazon Pay precisely solved this by ensuring immediate notification of receipt under the 30s,” an industry insider told claiming anonymity. 

In the crowded market, the RBI granted a payment aggregator license to Infibeam Avenue, MSwipe, and Amazon Pay recently. Similarly, in December the RBI approved a Payment aggregator license to Razorpay, Cashfree Payments, Open Money, and EnKash.

Battle for Market Dominance

The smaller UPI players are struggling to carve out their niche. According to experts, limited marketing budgets and an inability to offer competitive rewards pose significant challenges for these up-and-coming platforms. The UPI's reach extends far beyond India's borders. With adoption spreading to countries like France, Bhutan, and the UAE, India's homegrown payments system is poised to make its mark on the global stage. Talks are underway to introduce UPI in New Zealand and various South American and African nations, cementing India's status as a beacon of digital payments innovation. 

The rising footprint of UPI in the global market is expected to pave the way for more competition, and more entrants trying their fate. 

Tech Titans Enter the Arena

Amidst the market, tech titans are making their move. Google, in collaboration with NPCI, is gearing up to expand its Google Pay service into international markets, joining the ranks of other payment aggregators eyeing global expansion. Not to be outdone, e-commerce giant Flipkart has rolled out its UPI offering to eager consumers, signaling its entry into the fiercely competitive digital payments landscape.