BHIM UPI: NPCI Readies A New UPI Competitor

"This development aims to meet the growing demand for digital transactions and evolving market expectations while keeping pace with innovation and rapidly shifting customer preferences. Additionally, it aims to promote financial inclusion," the statement by NPCI read.

But why do the whole rigmarole? BHIM, as a UPI app, had not seen much success and nearly 90% of the payments through the interface were being controlled by just two entities. This question has bothered many payments ecosystem watchers since then.

Three people close to the development, who spoke to NDTV Profit anonymously, said that this move is aimed not only at cutting the duopoly in UPI but also to boost national interest in payments.

NPCI even hinted at this in its statement last month.

"This development not only aims to strengthen India's own digital payment ecosystem but also reflects a sense of national pride and significance in developing a sovereign digital payments framework," the payments corporation had said.

Payments made through the Unified Payments Interface crossed Rs 20 lakh crore for the fourth month consecutively in August, according to data released by the NPCI.

The two largest UPI applications, Walmart's PhonePe and Google Pay, cumulatively controlled about 88% of this as of July 31. Even on a payments volume basis, PhonePe accounted for 48.3% of monthly transactions in July and Google Pay's tally was at 37%.

Attempts by NPCI to introduce market share caps have been in vain so far. While the payments corporation had initially talked about a 30% market share cap in 2021, it has not been able to implement one ever since.

Forcing a payments cap would be disastrous at a time when the UPI market is consistently breaking new records every month, the first two people quoted above said. However, there is a need to limit the impact of this duopoly in UPI, they added.

Currently, the third-largest UPI app, Paytm, reported 113 crore transactions worth Rs 1.23 lakh crore in July, a mere 7.8% market share by volume and 6% by value.

For comparison's sake, BHIM reported about 2.5 crore transactions worth Rs 8,756 crore, a marginal player by both volume and value. By creating NPCI BHIM Services, the umbrella payments firm is looking to boost these numbers.

According to the third person quoted above, it would not be prudent to believe that the PhonePe-Google Pay leadership will be broken in a short span of time. However, with the creation of this new entity, NPCI will be able to dedicate resources and focus attention to BHIM, so it could reach its true potential.

It will also allow NPCI to cut the system's dependence on foreign players to spread UPI in India.

Currently, there is no specific market that NPCI BHIM Services is targeting to grow its services. But the expansion of UPI in small value accounts opened under the Pradhan Mantri Jan Dhan Yojana can provide a good opportunity for growth, the third person said.

Over and above this, NPCI is also treating BHIM as a testing ground for new features. This was visible at the Global Fintech Fest, which concluded last week. NPCI announced the launch of its UPI Circle feature, which allows users to add a circle of trusted secondary users, who can spend using the primary user's bank account within a certain limit.

This new product is currently only available on BHIM and is expected to be one among many to fuel the next phase of UPI growth. According to the first two people quoted above, the product is being honed to develop two key markets. The first is that of pocket money by parents for their children and the second is corporate payments.

Currently, parents transfer funds to their children's bank accounts, which are then spent using UPI. Introducing UPI Circle will not only allow greater control and oversight for parents but will also make the process smoother.

Even in corporate payments, companies can set specific payment limits for their employees, where misuse of funds can be blocked entirely, the first two people said.

Going ahead, more such products will be launched on BHIM exclusively to allow it to grow and popularise new use cases. Cashbacks, which fuelled the first round of UPI expansion, are unlikely to be employed here as NPCI is trying to develop genuine use cases and not a fad.