(MENAFN- KNN India) New Delhi, Oct 31 (KNN) The India Fintech Foundation (IFF) has called for urgent policy intervention from the Finance Ministry and the Reserve Bank of India (RBI) to reduce concentration risk in the Unified Payments Interface (UPI) ecosystem, warning that over 80 percent of UPI transaction volumes are controlled by just two third-party app providers (TPAPs).

It has submitted a policy recommendation note, titled 'Policy Options for Mitigating Concentration Risk on UPI', to the Finance Ministry and the RBI.

"This note has been prepared after extensive consultation with our member fintech institutions and draws on global precedents to propose balanced, market-friendly approaches to strengthen competition, inclusion, and systemic resilience within the UPI framework," the note said, reported PTI.

It further added that the dominance of two major players poses systemic and competitive risks, limiting market access for smaller domestic platforms despite there being nearly 30 third-party application providers (TPAPs) operating on UPI.

IFF said this market concentration has been enabled by predatory pricing practices such as heavy discounts and cashback incentives, which have eroded the market share of homegrown competitors, including government-backed BHIM.

It warned that the absence of merchant discount rate (MDR) and the capital advantage enjoyed by large players create high entry barriers for emerging fintechs, stifling innovation and weakening consumer choice.

Noting delays in implementing the National Payments Corporation of India's (NPCI) proposed 30 percent market-cap rule for TPAPs, IFF argued that the leading players were growing too big to regulate effectively and risk becoming too big to fail.

To address the imbalance, IFF has recommended restructuring the UPI incentive framework to favour smaller players.

It has proposed a cap similar to the US Durbin Amendment, suggesting that dominant TPAPs should not receive more than 10 percent of UPI incentive payments under the government's digital payments promotion scheme.

Redirecting incentives to smaller TPAPs, it said, would encourage banks to broaden partnerships and support competition, including for fraud-mitigation investment.

IFF has also recommended a data portability mechanism on the lines of India's Account Aggregator framework to allow users to easily switch between payment apps.

The organisation urged policymakers to adopt corrective measures to ensure equitable growth and safeguard the long-term competitiveness and resilience of India's digital payments ecosystem.

(KNN Bureau)

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