India is confused on how to reduce the dominance of PhonePe and Google in payments

India faces a dilemma in implementing long-delayed rules to curb the dominance of PhonePe and Google Pay in the country’s fast-growing digital UPI payments market.

The National Payments Corporation of India (NPCI), a special unit of the central bank, wants to limit the market share of any player in the Unified Payments Interface ecosystem to 30%. With Paytm, the third-leading player on the UPI charts, fighting for its survival, NPCI faces a unique challenge as PhonePe and Google Pay chip away at their market share: It doesn’t know how to do so. .

Two sources familiar with the situation said NPCI officials believe there is a technical hurdle in achieving the target and have sought views from industry players in recent quarters. NPCI, which delayed implementation of the rules till 2024, declined to comment.

Its dilemma has come into focus again after a parliamentary panel last week asked New Delhi to support domestic fintech firms to counter the dominance of PhonePe and Google Pay. This came after the central bank directed the third largest player Paytm to shut down several operations in Paytm Payments Bank.

Brokerage firm Macquarie on Tuesday dramatically cut its 12-month price target on Paytm on concerns that its lending partners as well as customers may leave the platform. Macquarie, whose price target implies a $2.1 billion valuation for Paytm (taking into account that Paytm has $1 billion in cash balance), said the Noida-headquartered company is “fighting for its survival.”

Industry executives cautioned that a further decline in Paytm’s market share would benefit the top two. Citing official data, the parliamentary panel said PhonePe had 47% market share and Google Pay 36% during October-November 2023.

Industry executives said the only way for PhonePe and Google Pay to comply with the 30% limit is to stop adding new users. Meanwhile, PhonePe continues to spend on marketing to gain more share.