UPI market share will balance out, but it will take more time than we initially envisaged: NPCI CEO Dilip Asbe

NPCI CEO Dilip Asbe

National Payments Corporation of India (NPCI) MD and CEO Dilip Asbe has hinted at a possible extension of the December 2024 market cap deadline for third-party Unified Payments Interface (UPI) payment apps for the first time, acknowledging that it will take longer than expected for the market share to balance out. To be sure, Asbe said a decision is yet to be taken.

The UPI market in India is currently dominated by Walmart-owned PhonePe and Google Pay, which have over 85% market share combined. In November 2020, NPCI introduced a cap to ensure no single third-party app provider (like Google Pay or PhonePe) controls more than 30 percent of total UPI transaction volumes, with a deadline of December 31, 2024 to comply.

However, as Moneycontrol reported in May 2024, NPCI is leaning towards extending the deadline again to avoid any disruption in India's rapidly growing digital payments ecosystem.

In a wide-ranging interview at the offices of the National Payments Corporation of India in Mumbai, Asbe also spoke about why BHIM app is needed for the payments ecosystem in India, the prospect of MDR (merchant discount rate) returning to UPI and attracting tech talent. Founded under the aegis of the Indian central bank, NPCI is often called the crown jewel of Indian fintech, having digitised and revolutionised the Indian payments landscape through innovations such as IMPS, UPI, and RuPay cards.

EDITED EXCERPTS:

It's been a pivotal year for NPCI, your numbers just came out, hugely profitable, with huge growth in revenue and we've also seen UPI going global. Take us through the year that was.

The Global Fintech Festival (GFF) was a very prominent point for us and this year none other than Prime Minister (Narendra Modi) came for that event, so it has taken the event to a different scale. But, from an overall perspective, we look at some of the launches in GFF, when you look at some of the innovative things that we have launched like the UPI Delegate Payments, UPI Circle, the Bharat BillPay launched the B2B platform.

September was a landmark month for you because on two days in September, UPI crossed 500 million transactions a day and you have told us in the past that, by 2026, you're aiming for 1 billion transactions a day. Do you think you'll move that target forward?

In the last few days, I've seen some of the numbers which are going very close to 550 million also.

That's because of the festive season sales?

Normally, we see a peak during the festive season. I don't think we have a specific target for when to achieve certain numbers because, from an overall perspective, the UPI ecosystem is already well-established. The job of the NPCI and the ecosystem is to ensure that the customer experience and what you call the network is available. I think more than a billion a day, now we speak about 100 billion a month, right?  I think it's a great vision to have, and it inspires NPCI and our employees to take pride in being part of the nation-building process.

I remember Kunal Shah of CRED at GFF saying that, he tells his product team to just look at NPCI and that's what dictates the product roadmap for them. Pine Labs’ Amrish Rau said on X that people come to GFF, they realize NPCI has already innovated everything and they go back. What kind of tech team have you built here at NPCI, which is able to anticipate user needs very well?  

First, don't take these founders very seriously. They keep tweeting a lot of things. I believe the NPCI's role, as defined by the RBI, is to act as a central platform. Previously, we referred to it as a clearing house, but with the recent technological innovations and new use cases, it has evolved into a more centralised platform. So, our role is very much restricted to what we do from a central infra perspective. When the NPCI was set up by the RBI, the objective was to create an institution that leverages innovation as its edge. With a population of 1.4 billion, India has diverse needs that differ significantly from those in Western markets.

And while NPCI must be efficient, we have paid attention to opportunity. And again, the regulator and the government have been very supportive of this innovation. And working with the regulator adds a lot of value to us.

Is it hard for you to attract tech talent? Because you have to compete with fintechs which pay high salaries, they also give ESOPs. So, what is your pitch to recruit people?

We have three centres now. We have one in Mumbai, one in Hyderabad and Chennai. And, of course, it is a little difficult to attract talent looking at the market salaries of the competitors and what they can provide. But our value proposition is put up in three parts to the employees. One is scale, in terms of the opportunity and impact. The second is the whole complexity and opportunity to learn what NPCI provides and the last and not the least is the pride for building something for the nation.

How much AI are you using now in product development, in operations?  

We have such large data sets and to make sense of that data, AI is the only way to make the value out of that data. And we use AI for risk and fraud management in a big way. About 200 people are working in AI and data science now. It can also help with code review and software development process.

With respect to UPI going global, will this be a continuing trend? How many more countries can we expect UPI in the next year?

This a long-term game. I don't think even within NPCI or at the RBI government level, we expect very short or quick results. Because any country wants to decide on the domestic payment system, it takes about 12 to 18 months for them to even decide on the technology they want to use. The other part which our NPCI international team is doing is the cross-border payments. We now have the infrastructure in place for almost all neighbouring countries.

Do you see RuPay becoming a dominant international card network like MasterCard and Visa?

I think the RuPay card with global acceptance is the way we have positioned it. We have relied on global partnerships. So, it's a domestic card scheme with international acceptance.

NPCI now has multiple subsidiaries- from international payments to BHIM to Bharat BillPay. You are hugely profitable. What’s your overall vision? Will you unlock value from these entities at some point?  

I don't know really what the future is but at this stage, we want to make it big. I think NPCI International, get into as many countries as possible. BBPS has been also doing extremely well, with all the bill payments. Those kinds of things do not exist globally anywhere. BHIM is the new kid on the block. When we looked at BHIM, we looked at BHIM as a starter app- new functionalities in more like a go-to-market strategy for all the new features of UPI.

But we need an alternative in terms of a stable app, a trusted app. And so, the RBI and the board have decided to look at BHIM as a separate subsidiary. And more focused approach because within NPCI, we don’t know how much attention we would be able to pay to BHIM. And that's why it has been hived off as a separate subsidiary. And I think in a year or two, you will see a good, competing app in the market.

Today, BHIM needs investments, whether it's technology, whether it's a lot of marketing, building up the visibility or creating a brand. Even from a skill set standpoint, it needs a very different skill set.

What do you make of the criticism that this is a conflict of interest for NPCI - that you are operating the UPI rails and you are backing a separate BHIM UPI app with an @upi handle?  From what we understand your marketing expenses for BHIM are to the tune of Rs 300 crore. We heard some bankers too are not pleased.

Banks are on our board and the banks wanted BHIM to grow. I don't know which banks are telling you that.

You don't think it's a conflict of interest?

Not at all. I think BHIM will help to expand the ecosystem. BHIM will help to get more features back into the market. At the same time, we will have to look at BHIM as a little separate initiative from the commercial institutions in that sense, BHIM is the country's own app, and the Prime Minister launched that app. I think it would be totally incorrect to look at BHIM along the lines of other commercial apps.

But the third-party apps are okay with this arrangement, the TPAPs?

We don't need to ask them. We don't need to ask them to drive the national initiatives. Whatever is good in the national initiative, under the guidance of the government and RBI, NPCI will continue to drive.

But is this a way to counter the duopoly from Google and PhonePe?  Because they continue to dominate digital payments. 87% UPI market share irrespective of more players entering the market. In the last few months, you have had Flipkart and Navi which are growing quite well. CRED also. Plus, with the Paytm Payments Bank crisis added to PhonePe and Google’s market share.

Unfortunately, Paytm also went through trouble, but if you look at it in the last year, we have seen great interest from some of the players. In fact, tens of new TPAPs want to enter the market.

So, then why do you need BHIM?

BHIM is the country's own app. So, I look at BHIM as a national infra or a DPI. And you know today when the countries are looking at UPI globalisation, in fact, BHIM also is going back as one of the apps to be given back to that country so that country can operate a BHIM app of their own. But obviously, our primary goal is to ensure that BHIM remains popular.

Why do you think smaller apps haven't managed to upstage Google or PhonePe?  Network effects?

See, network effects have kicked in. There is no doubt about that, the network effects have kicked in. But I still think that now that the pipeline is good, now the interest is renewed, many of them will also look at credit and credit line on UPI. I think the market will balance out, but it will take some time. It will need some more time than what we earlier envisaged. But for sure the market will balance this out.

So, if it's going to take some more time, is an extension inevitable, the December 2024 deadline?

See, I don't know. We will take the decision at an appropriate time.

But you are yet to take a call on this?

The decision has not been made. That's what I can say at this stage.

Because I remember at GFF, Sameer Nigam said, he will not do an IPO till he has clarity on the UPI market share guidelines.

See, it's their call. But I am just saying that the government, RBI and NPCI's objective is to have a more balanced market. And have a balanced market without hindering much of the growth of UPI. That's what our objective has been. And we will continue to work to achieve those objectives

Is there also a sense from Fintechs that you are perhaps cannibalizing what their moat is? Because you have had Fintechs who have based business models on this UPI Circle type of product, mule product, eKYC. And then NPCI comes in and introduces these products at scale.

You are taking too seriously what these guys are talking about. We are not holding up any data. We are not creating any context inside the NPCI. So, NPCI is just an enabler. We are just an interoperable platform and provide the API so that the different parties can hook up and interact with each other. That's all that we do. I think maybe we have not done a good job of explaining to these founders that we are only an enabler.

Is there a case to revisit MDR (merchant discount rate)?

I think the misconception comes in as P2P versus P2M. So, I think first of all, right from day zero, right from 2016, when we launched, the consumer was never charged on UPI, right for a P2P. It was only the merchant. Okay, look, I think whether the MDR can come back has to be decided by the government in consultation with RBI.

But do you believe there is a case for it?  If they ask your opinion today, what will you say to them?

I don't think the small merchants are ready yet, right, and today still there is a huge scope of expansion possible.

And I don't think the MDR would come for the small merchants in that sense. So, I think even if the MDR comes in, it is going to be only for the large merchants.

So, 100 billion UPI transactions a month by when?

See, I don't want to put a timeline on that. But I think we want to achieve in a more sustainable way without compromising any safety and security. And in a balanced way, where we see that it's a more balanced and evened out market.