Despite the absence of Merchant Discount Rate (MDR) on UPI transactions, the interest from new participants in India’s UPI ecosystem is on the rise. According to Dilip Asbe, Managing Director and CEO of the National Payments Corporation of India (NPCI), 50 new third-party application providers (TPAPs) are eager to enter the UPI ecosystem.
Asbe acknowledged that the lack of a revenue model in UPI had initially discouraged new entrants. “The revenue model on UPI dried off the funnel of new players entering into the market. But in the last year, we have seen great interest by some players. We have around 50 new TPAPs wanting to enter the market,” he told MoneyControl.
Rising Interest from New Players
Some of the new participants in the UPI market include platforms like Navi, BharatPe, and Super.money. While UPI transactions remain mostly free for debit payments, with payment-processing costs covered by fintech companies and banks, this hasn’t dampened the growing interest.
Although there is no MDR on most UPI transactions, Asbe hinted that MDR might be introduced for large merchants in the future. “I don’t think an MDR would come for smaller merchants, but if it happens, it could be for larger ones,” he said. MDR is a fee levied on merchants by payment processors for digital transactions, allowing these companies to earn revenues.
Growth Amidst Duopoly Concerns
Currently, the UPI market is dominated by two major players, PhonePe and Google Pay, which handle nearly 87% of UPI’s monthly volumes. Addressing concerns over a duopoly, Asbe expressed confidence that the market would eventually balance itself out as newer players step up their investments, especially with innovations like UPI-linked credit products.
“I think it will take some more time than we expected, but for sure the market will balance out,” Asbe said. The NPCI had proposed a 30% volume cap on TPAPs in 2022, aiming to reduce market concentration. However, no decision has been made on implementing the cap.
Technology to Strengthen UPI
In addition to market expansion, the NPCI is utilizing cutting-edge technology such as artificial intelligence (AI) to strengthen UPI’s infrastructure. Asbe highlighted the role of AI in improving risk and fraud management, adhering to anti-money laundering guidelines, and detecting mule accounts.
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