Fast-Growing Indian Market Irresistible Attraction For Digital Payment Giants

By K Raveendran

Violations and atoning for them are in the DNA of Google and its owner Alphabet. Google had to pay penalties of Rs 2,274 crore within the space of a week, in two orders issued by the Competition Commission of India for misusing its dominant position in relation to Play Store and engaging in unfair commercial practices. The tech giant, however, was least apologetic, insisting powered India’s digital transformation and expanded access for hundreds of millions of Indians and swore by its commitment towards Indian users and developers.

While Google’s claim is justified to some extent in terms of its contribution, the Indian market has played no small part in generating revenue for the big techie, both by way of ad revenues as well as market share in one of the most dynamic markets of the world in digital payments.  According to IMF sources, India’s digital payment volume has climbed at an average annual rate of about 50 percent over the past five years. That itself is one of the world’s fastest growth rates, and the country’s own UPI ecosystem has grown by about 160 percent annually.

According to these sources, transactions more than doubled, to 5.86 billion, in June from a year earlier as the number of participating banks jumped 44 percent, to 330. Values nearly doubled in the same period. In addition, the RBI in March introduced a UPI for feature phones that can potentially connect 400 million users in distant rural areas. Updated figures for August by the National Payments Corporation of India (NPCI) had PhonePe clocking 3.14 billion UPI transactions with a market share of 48 percent and Google Pay 2.2 billion transactions, with 34 percent share, on the payments highway. WhatsApp Pay had only less than 1 percent share of the overall UPI market, with only 6.72 million transactions.

With WhatsApp making a foray into payments universe and new Twitter owner Elon Musk announcing plans to take his birdie microblogging site to the payments business, there is going to be even increased focus on the Indian market. The Tesla boss has already indicated that Twitter would soon introduce payments for commercial use of the social platform. For both, India will be one of the biggest target destinations.

An IMF paper quotes NCPI chief executive Dilip Asbe to say growth for individual digital payment users is set to triple in five years to 750 million, while merchant users could double to 100 million. The Reserve Bank of India fosters a varied ecosystem of payment systems, including RuPay, the National Financial Switch cash machine network, and a payment system using the Aadhaar programme to bring banking to underserved areas.UPI is nearly free for consumers and the government is providing incentives for promotion of UPI merchant payments.

With a burgeoning cashless society, hundreds of millions of young people take to digital payment as second nature, helping digital payment platforms swell their ranks. Meanwhile, NPCI is in talks with the government and industry stakeholders on the implications of delaying the implementation timeline for limiting the market share of individual players in the UPI ecosystem. The deadline was originally set for January 2023, but currently the timeline under consideration is another three years away.

Leading platforms have argued that as more third-party players come into the UPI fold, it should be allowed to grow organically instead of setting limits on market share. Current market leaders are saying they have made pioneering investments and therefore do not want a cap to limit their market share at least until they have recouped their initial investments. They want the consumers to be given the freedom to choose their UPI apps rather than any specific ones being forced on them.

It is in this backdrop that the RBI is considering the launch of its own digital currency. The idea is to extend monetary policy objectives of financial stability and efficient currency and payment operations into the platforms so that the growth of the industry is managed in a more orderly fashion. BI deputy governor Rabi Sankar, who oversees payment systems and financial technology, believes such an advance would have advantages for currency management, settlement risk and cross-border payments. (IPA Service)