India Gives Popular Payment Apps More Time to Meet New Rules

India's National Payments Corporation (NPCI) has delayed a new rule that would limit how many payments any single app can handle. The deadline has been pushed back by up to two years, giving relief to two dominant apps: PhonePe and Google Pay.

PhonePe handles 47.8% of all payments made through India's UPI system, while Google Pay handles 37%. Together, they process about 85% of all transactions. The new rule would cap any single app at 30% of the market.

A Rule That Keeps Getting Delayed

The NPCI first announced this 30% cap in 2020, with a deadline at the end of 2022. When that deadline arrived, both apps were still above the limit, so regulators gave them more time — until the end of 2024. Now that 2024 has passed, the NPCI has granted another extension of up to two years.

This pattern shows how difficult it is to reshape a market once two apps have become dominant. Regulators face a tricky balance: they want more competition, but they also need to keep payments working smoothly. In India, the UPI system processes billions of transactions every month, so stability matters.

UPI launched in 2016 as India's unified payment system. It lets people send money directly from one bank account to another using a QR code or a mobile app. The government decided not to charge fees for these transfers so more people would use digital payments instead of cash.

Why Two Apps Became So Popular

PhonePe and Google Pay dominate because of the same reason Facebook or WhatsApp do: everyone else is using them. Once most of your friends and shops accept one app, there is little reason to switch to another.

PhonePe benefits from being owned by Walmart, which also owns Flipkart, India's largest e-commerce site. It offers cashback rewards and works seamlessly in online shopping. Google Pay works across Android phones, which most Indians use, and connects to other Google services people already have.

Both apps act as intermediaries between your bank and you. They interface with the banks using a standardized system that NPCI controls. The real competition happens in user experience and which shops accept the app — not in the underlying technology.

A Global Shift Adds Complexity

India has been exporting its UPI system to other countries, including France, Singapore, and the United Arab Emirates. This international rollout makes the domestic market share rules even more complicated, since India is trying to position UPI as a global standard.

Internationally, UPI's open design sets it apart. Unlike credit card networks like Visa and Mastercard, which are controlled by single companies, UPI lets different banks and apps work together on equal footing.

The Broader Context

Over decades of covering payments technology — from early attempts like SET protocols through PayPal to mobile wallets — I have seen this pattern before. Regulators often struggle when networks naturally consolidate because people choose to use the most popular option, not because of unfair business tactics. Artificial limits can sometimes backfire.

Since the government bans UPI apps from charging fees, the platforms cannot use pricing to keep customers locked in. Instead, they make money through data collection, merchant fees, and by offering related financial products. This structure means some traditional competition concerns do not really apply here in the same way they would for other businesses.

New competitors like Amazon Pay, Paytm, and bank-run apps continue fighting for space, though none have reached the scale of the two leaders.

What Happens Next

The extended deadline lets India's digital payments system keep growing without sudden regulatory shocks. UPI already processes over 10 billion transactions per month as of late 2024, and usage is spreading to smaller towns and villages where digital payments were not common before.

For PhonePe and Google Pay, the delay means they can keep expanding their other financial services, improving tools for shops, and taking UPI to new countries. They also do not face disruption from forced market share cuts.

This measured approach may actually work better than rigid rules. Letting the market develop at its own pace, while watching for genuine problems, often produces more innovation and wider adoption than regulatory heavy-handedness does.