India’s 30% cap in UPI may avoid tech monopolies
From Washington to Beijing, governments are trying to strike the right balance between enabling technology innovation and preventing giants like Google and Facebook Inc. from suffocating rivals. Now India is experimenting with a framework for financial technology that’s certain to provide lessons worldwide—succeed or fail.
The country’s unique approach is to decree limits on fintech competitors from the start: No single player can grab more than 30% of total payments transactions. Every company also has to use India’s open payments platform, guaranteeing interoperability so money can be transferred between any of more than 100 traditional banks and digital services like Google Pay— all without fees.
That structure, unveiled in November, gave India’s regulators the confidence to approve a new payment service from WhatsApp, the Facebook unit’s initial effort to enable digital payments worldwide. Although WhatsApp has more than 400 million users in India who may adopt the service, it won’t be able to crush rivals like the local champion Paytm because of the government caps.
“In the interest of public good, we’ve disallowed a winner-take-all approach,” said Dilip Asbe, chief executive officer of the National Payments Corporation of India, a coalition of set up by the country’s largest retail banks to build and oversee the infrastructure. His group will stop new user registrations at a company, local or foreign, as it nears the 30% limit.
India has celebrated its methodical approach as a way to get things right from the beginning, especially after Chinese regulators intervened at the last moment to derail what would have been a record initial public offering from Ant Group Co.
In India, the digital payments sector is projected to grow to $1 trillion by 2023, creating a potent new platform for additional financial services. “Both countries have established themselves with best practices for others to learn from,” said Arnav Gupta, analyst at Forrester Research Inc. “India has set itself as a worthy example for digital payments but there are aspects of financial services which are yet to be streamlined and digitised.” China, on the other hand, is a more mature fintech market, he added.