- Context (TH): The Parliamentary Standing Committee on Communications and Information Technology is worried about foreign-owned fintech apps (Walmart-backed PhonePe and Google Pay) dominating India.
- They suggest promoting local players to address this concern.
- PhonePe holds the leading market share in volume terms, followed by Google Pay, with 46.91% and 36.39% (Oct and Nov 2023). In the same period, NPCI’s BHIM UPI had a market share of only 0.22%.
- Fintech companies were also being used for money laundering.
- For example, an Abu Dhabi-based app named Pyppl, administered by Chinese investment scammers, posed challenges for Indian law enforcement agencies in tracking the money trail from scams conducted on the platform.
|
Significance of UPI
- Minimal Impact of Fraud
- The fraud-to-sales ratio (representing fraudulent transactions compared to the total) has remained at around 0.0015% over the years despite the increased volume of transactions in the last five years.
- According to McKinsey’s Global Payments Report (September 2023), the advantages of instant payments are,
- Helps in eliminating the hidden costs associated with managing cash transactions.
- Has induced a shift in consumer behaviour, enhancing security and digital commerce access.
Committee’s recommendations
- Need for effective regulation of digital payment apps due to the increasing use of digital platforms for payments in India.
- Promoting local players because regulatory bodies like the RBI and the NPCI would find it more feasible to control local apps compared to foreign apps operating in multiple jurisdictions.
- The committee’s recommendations align with NPCI’s 30% volume cap on UPI transactions issued in November 2020.
- This cap limits the total transactions initiated by third-party apps (like PhonePe and Amazon Pay) to 30% of the overall transactions made using UPI interfaces cumulatively over the three preceding months.
- The rationale was to promote the growth of UPI and achieve market equilibrium by encouraging both existing and new players to scale up consumer outreach.
- Apps exceeding this cap were initially given two years to comply with the directive, and the compliance timeline was extended to December 31, 2024.
|
Way forward
- A balanced mix (Local fintech players + Foreign fintechs) should be allowed to evolve, varying across areas like payments, lending, wealth management, and insurance.
- Local fintech players have a natural advantage in understanding the Indian customer, ecosystem, and market infrastructure.
- Foreign fintechs excel in new technologies and global connectivity.
To know more about the parliamentary standing committee, visit > parliamentary committee
