NPCI has a payments-market monopoly, and UPI enjoys a product monopoly; consumers can't transfer money 'instantly' without the UPI platform or NPCI's switch
WhatsApp is reportedly set to launch its payments service, “WhatsApp Pay”. The entry of a new heavyweight in India’s payments market will concern users, technology players, service providers and even regulators. Fortunately, India’s payments market owes its success to a design that encourages service providers to compete and innovate. This suggests that the key to delivering value to consumers and protecting them is regulators prioritising innovation and robust competition in the market.
WhatsApp Pay, like its competitors PhonePe, Paytm, Google Pay, etc, will operate on the UPI platform. The National Payments Corporation of India (NPCI) created and runs the UPI platform. It also approves Payment Service Providers (PSPs) who use its platform.
WhatsApp’s foray into payments is significant. Its existing services have a large and diverse user base globally. An estimated 75% of its 400 million subscribers in India start and end their day with WhatsApp. Several enterprises already use WhatsApp for Business. The wide familiarity with its platform would be a big advantage for combining two key functions, viz messaging and money transfer. One could expect more innovation, and even more intense competition in the payment space.
WhatsApp will join over 150 PSPs already in the market. This reveals the continuing commercial attraction of India’s market for payments and, by extension, that for digital communications. Equally, it also reflects the strength of the UPI platform.
Thanks to UPI, the transfer of a bank customer’s funds to another account, which three years ago, could take days, now takes just seconds. Roughly, 100 million users can access UPI. The platform is available on 148 banks, ranging from small rural banks to major national and international banks. And, a Who’s Who of global players including Google, Amazon, Samsung, along with many more Indian companies, provide numerous third-party apps access to the platform. The number of apps available is over 70 and rising.
UPI has grown exponentially in the three years of its use. A look at UPI’s monthly data shows the success achieved. In March 2020 alone, it completed 1.2 billion transactions amounting to over Rs 2 lakh crore in value. (These numbers slipped about 6-8% in April. It is unclear if Covid-19 contributed to this. However, the April data is no less impressive).
UPI has, arguably, done more for digital India and financial inclusion than many other standalone projects. Innovation by market players is expanding access as well as the range of features and services to meet consumers’ needs.
The UPI platform also highlights India’s emerging role in setting global standards. It has attracted several global majors to adopt it to compete in the Indian market. The UPI experience with standards would be invaluable for India as it seeks a larger footprint in the global technology space. Recall India’s aspirations to be a player in 5G standards.
A key strength of UPI is that it supports competition. It is agnostic to size, ownership, national origin of players. It attracts diverse players by making its infrastructure accessible to any entity regulated by RBI. The players can leverage their unique strengths: Smaller players have unique knowledge of local communities and their needs. Bigger ones can scale faster. International players like Google, WhatsApp, etc, have a history of innovation and pricing, which enables them in the delivery of services at a global scale. This diversity of players is as relevant to India’s goals of financial inclusion as it is to easing business in India.
NPCI has rightly focused on creating and maintaining its secure switching infrastructure for payments, offering interoperability across the PSPs. It has avoided conflicts of interest with users of its infrastructure. It has continually upgraded the platform. UPI 2.0 offers even higher levels of security and new features. NPCI is an impressive proof of India’s ability to deliver advanced technology solutions at scale.
However, the impressive achievements of the NPCI and UPI must not blind us to accompanying risks: NPCI is, in effect, a monopoly despite having a mix of private and public, small and large, Indian and international promoters. The UPI platform is itself a monopoly, despite being open to competing players in almost every segment. India’s consumers cannot transfer money ‘instantly’ without the UPI platform or NPCI’s switch.
The risks of monopolies are well known: fewer incentives to innovate, improve quality of service or, lower prices. As students of deregulation know, monopolies can abuse their ownership of bottleneck infrastructure, or discriminate between players seeking access. Recall how the US telecom giant, AT&T, before it ceased to be a monopoly in 1984, could impose conditions on players who wanted to connect equipment or devices to its network. India cannot afford such risks in a function as strategic as payments.
Consumers have an obvious stake in competitive markets. A post-Covid-19 world could make the use of cash even less practical. More enterprises, service providers and public agencies will need to move to online payments. Consumers too would demand greater flexibility and convenience in accessing and transacting with their money. They would want a greater range of financial products and services, e.g., loans, overdrafts, rolled payments, etc. People with lower income or those who are less digitally literate, may need an altogether new level of customer responsiveness as they transition to digital. Pressure from consumers and effective competition will spur greater innovation.
Safeguarding competition in the payment space is, therefore, a high priority. The Competition Commission of India (CCI) has an important responsibility. It must identify and eliminate anti-competitive behaviour, such as monopoly pricing, cartelisation by players, customer-locking, and any other market abuse.
The stakeholders in India’s payment ecosystem have their work cut out. It will take alert consumers, competitive players, and vigilant regulators to deliver the full potential of a truly competitive payments market. If they succeed, India would have made giant strides in its journey towards two important goals: financial inclusion and the ease of doing business.
The author is Consultant, regulatory and policy issues in the communications market. Views are personal