A payments architecture that is ubiquitous, costless to the user, reliable and used by millions, UPI is one of India’s defining contributions to the 21st century. It has allowed India to bypass the dominance of card networks and moved digital payments ahead by decades.

Here, we argue that the policy discourse on problems created by the duopoly-like-structure in the third-party app providers (TPAPs), such as GooglePay and PhonePe, and the attempts to reduce market share below 30 per cent, is misplaced. The imposition of arbitrary market-share cap to mimic a competitive outcome is counterproductive. These markets tend to become concentrated due to positive network externalities. There are other issues around UPI that need to be addressed — the biggest is personal data protection. [Read more…]