NPCI feels the heat
With the UPI transaction volume soaring to record highs of 13.44 billion in March, up from 8.7 billion last year, the pressure is on the NPCI to de-risk the concentration in the UPI ecosystem. There has been a serious outreach from the NPCI, which has reportedly begun meeting with smaller players to see how to move the needle on spreading market share.
The case of concentration risk in the UPI ecosystem is an old and intriguing one. A small recap of the timeline as background - in November 2020, the NPCI put out a rather curious notification - starting January 2021, no entity should have more than 30% of total volume; existing providers were given two years to comply in a phased manner. There was no clarity on the penalties of non-compliance and no clarity on how the big players were expected to reduce their market shares. Consequently, in December 2022, the deadline had to be extended by another two years. Recall that in November 2020, two players – Google Pay and PhonePe dominated with 43% and 39% volume share respectively. Today they continue at the top, but with rankings switched. Together they used to and still do control more than 80% of volume and value. With the RBI action on Paytm Payments Bank, the share of the third ranker Paytm has dropped from 11-12% to 9%, skewing the market even more. And NPCI is again struggling to meet the year-end deadline.
Perhaps NPCI should drop the insistence on trying to implement a market cap rule and heed Rohan Lakhaiyar’s suggestion, as reported in this excellent deep dive by Pratik Bhakta, which is to put in place higher scrutiny and compliance standards for players with more than 30% market share. This would definitely be a smarter, more efficient and effective mechanism of addressing the risks stemming from concentration. Especially since the incentive to invest in increasing market share is quite low for smaller players.
And here, the policy against levying transaction charges on UPI needs a revisit. Clearly, the government subsidy towards low-value transactions is not enough to incentivise players to grow their network. Read Rahul Matthan on how a token annual charge from UPI consumers can work towards a more sustainable system. Sometimes, simple pricing is all it takes for a healthy ecosystem.
With the Met forecasting above-normal temperatures this summer, our two must-read pieces this month highlight the connection between climate change and financial inclusion: a) Sumita Kale has an op-ed in Business Standard on how a collaborative approach across multiple stakeholders, tying in granular data and decentralisation, is critical for addressing the impact of changing weather patterns on vulnerable segments and b) Majorie Chalwe-Mulenga, CGAP, explains why climate-driven financial policies need to be closely examined as they can aid financial inclusion, but can also inadvertently aggravate financial exclusion.
Do read more news and views in our curated list below. Please also follow our Indicus Centre for Financial Inclusion page on Linkedin to continue the conversation.
Urvashi Mishra, Fortune India, writes on the connection between climate change and financial inclusion of women, with inputs from Kalpana Ajayan, Women’s World Banking.
Karina Broens Nielsen and Emilio Hernandez-Hernandez, CGAP, have a blog post looking at ways in which digitized data on customer outcomes and their financial transactions along with innovative research methodologies can be leveraged to better understand factors that drive the diverse impact of financial services.
Raghu Mohan, Business Standard, looks at the relationship between SROs and RBI.
State Bank of India’s Economic Research Department brought out a detailed data packed report on the SHG phenomenon sweeping India.
Diganta Nayak, Ritika Singh and Vikram Sharma, MicroSave Consulting (MSC), write a blog post exploring the transformative potential of digital innovations to improve the efficiency of public expenditure in particular and strengthen public finance management (PFM) systems in general.
Maria Fernandez-Vidal and Dean Caire have a note out from CGAP highlighting two case studies that provide evidence of the value of transactional data for credit scoring for different types of micro and small enterprises.
The Fintech Association for Consumer Empowerment (FACE) and MicroSave Consulting (MSC) brought out results from a survey on user experiences with digital lending applications (DLAs) in India.
Prasanta Sahu, Financial Express, gives an in-depth account of the rise in PMJDY accounts.
LEAD at Krea University and Ambuja Foundation have a report out, “Scaling the Ladder: Exploring the Growth Potential for Women-Led Nano Enterprises”.
Bipin Preet Singh, MobiKwik, looks at the way in which the government, regulators and industry can collaborate towards healthy growth of India's fintech sector
Ivo Jeník, Rafe Mazer and Maria Fernandez-Vidal, CGAP, have written a working paper highlighting the impact of open finance on financial inclusion, using examples of open finance implementation in Brazil and India.