Implementing the cap on the volume of UPI transactions at this stage could have caused some friction in the UPI network, said Reserve Bank of India (RBI) Deputy Governor T Rabi Sankar.
“Competition takes time to evolve, we’ll have to wait for it to evolve. And at this stage of time, probably implementing that, would have cost some sort of friction in UPI,” Sankar said at a conference organised by the Indian Banks’ Association on Saturday.
His comments come a day after NPCI (National Payments Corporation of India) extended the deadline for meeting the volume cap on UPI transactions by two years till December 2024.
NPCI had then said that in view of the significant potential of digital payments and the need for multi-fold penetration from its current state, it is imperative that other existing and new players (banks and non-banks) scale-up their consumer outreach for the growth of UPI and achieve overall market equilibrium.
The guidelines, introduced in November 2020, mandated that the volume of UPI transactions initiated through a payment service provider do not exceed 30 per cent of the overall volume of UPI transactions during the preceding three months.
As per the latest NPCI data, PhonePe had a 47 per cent market share in terms of the volume of UPI transactions in October, Google Pay had a 34 per cent share and Paytm around 15 per cent.
Missed step
Talking about technological adoption by banks, Sankar today cited the example of UPI saying that it is a good example to understand how alert banks need to be.
“How’s it that a system of transactions between two bank accounts has evolved in a way where most of the business is owned by non-banks. Clearly, banks missed a step here,” he said.
This was probably because banks viewed these as small-value transactions, which were not worth investing resources and effort into developing the necessary technology and internal ecosystem.
“When a revolutionary technology comes up, it might initially affect a small part of business. Scaling that up, improvising and innovating on that to affect the rest of the business, is just one small step away. You miss the first step, you miss the train,” Sankar said.
He added that the fear of technology or digital is misplaced, and banks should not view fintechs as their replacement or competition, but look to collaborate and work with them to build an ecosystem that provides maximum flexibility.