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If PhonePe and Google Pay reduce providing incentives, it could result in the share of merchant payments shooting up
Google Pay and PhonePe will have to cut down on incentives given to their customers as they bring down their market share in UPI payments to an NPCI-prescribed level of 30%, Bernstein Research has said. This is seen as displeasing news to customers who would usually get cash rewards and cash-backs when transacting via these digital payment service providers. PhonePe and Google Pay are market leaders in UPI transactions.
National Payments Corporation of India (NPCI), which developed and launched Unified Payments Interface (UPI) for seamless and instant transfer of money, had in March imposed a 30% on the market share of individual players.
It had also said that it had the power and provisions to reprimand third-party app providers in case of violation.
In terms of the total number of UPI transactions by volume, Bengaluru-based PhonePe has a market share of 46%, followed by Google Pay at 35%.
The Rising popularity of UPI in India
The report by Bernstein Research said UPI had gained widespread popularity in India. Right now, its popularity and utility have extended to the domain of merchant payments, with the volume of UPI payments exceeding that of credit and debit cards. Cards continue to perform better than UPI owing to online payments and standing instructions, but UPI is expected to grow.
Gautam Chhugani, Director at Bernstein, has said in the report that in the domain of UPI applications, PhonePe is the leader in terms of overall market share and has grown it in comparison to rivals Google Pay and Paytm.
PhonePe and Google Pay continue to invest in customer incentives and their spending on marketing is pegged at 2.5-3.0x revenue. If PhonePe and Google Pay reduce providing incentives, it could result in the share of merchant payments shooting up.
Rival fintech company Paytm which owns a 14% market share is, however, not subject to the caps imposed by NCPI owing to the fact that it is not a third-party app provider, but a payments bank.
As per the report, Paytm is trying to explore the realms beyond UPI and is developing a full-stack payments suite consisting of PoS, online payments, along with a financial services platform emphasising pay-later lending. It is also exploring the businesses of wealth management and insurance. The report suggests that Paytm has cut its marketing expenditure from 1.2 x revenue in FY17 to 0.4x in FY20, and 0.2x in the current fiscal.