Unified Payment Interface (UPI) has changed the face of payments in the country, and has become the epitome of digital payments worldwide. It has influenced Fednow, an instant payments system in US, and P27, a real-time and cross-border payments system in the Nordics. While the real-time payment transfer system was an instant hit, it created an entirely different challenge of market concentration for the government in India – the interface is dominated by PhonePe and Google’s GPay. PhonePe has nearly 50 per cent market share with recent funding and valuation as one of the largest fintechs in the country, followed by Google Pay with over 34 per cent, and Paytm has 10 per cent share, and these transactions’ value could reach 10 trillion rupees by 2026

Market concentration is one of the biggest challenges, giving immense power to platforms and big techs. India is one of many countries facing these problems. The Reserve Bank of India (RBI) is contemplating a solution to end the duopoly through capping the limits. It was initially planned to kick in this year, but now it is delayed. It will take a few more years with a strategic plan to support new entrants for their growth, ultimately introducing a cap on market share to avoid market concentration. However, ongoing developments and new initiatives around UPI, make it imperative to deal with concentration risk as the highest priority as it leads to challenges like lack of competition, which can result in higher prices for consumers and businesses. It can also stifle innovation and limit choices for customers.

Confusion, mistrust

In a concentrated market, a single payment system or a small number of systems that dominate the market may have, too, much power and influence over the economy, potentially harming smaller businesses and individuals. It could also lead to a need for more transparency in how transactions are processed and fees are assessed, which can lead to confusion and mistrust among consumers and businesses. Market concentration creates entry barriers, and makes it difficult to compete for new entrants. It also poses a risk of data breaches and security.

It can lead to higher costs, limited options, and a lack of transparency, negatively impacting the economy and consumers.

The writer is a globally recognised fintech and payments expert