In recent months, there has been a growing concern over the dominance of foreign fintech firms in India’s digital payments landscape. A parliamentary panel has called upon the government to take action to promote the growth of domestic fintech companies in order to diversify the market and reduce the overwhelming influence of companies like PhonePe and Google Pay.
According to a report, PhonePe claimed 46.91 per cent of the UPI market share by volume from October to November 2023, while Google Pay held 36.39 per cent. This level of market dominance by just two companies has raised concerns about fair competition and the potential impact on smaller indigenous players in the fintech space.
The report also highlighted the recent setbacks faced by Paytm in its payments bank operations, as a directive from the Reserve Bank of India has halted its operations. This move has the potential to further diminish Paytm’s market share against competitors like PhonePe and Google Pay.
The National Payments Corporation of India (NPCI) has echoed these concerns, suggesting the need to cap market share in order to ensure fair competition. The NPCI initially proposed this measure in 2020 when PhonePe and Google Pay collectively held less than 80 per cent market share. However, the deadline for this measure has been extended to the end of 2024, as the two companies currently hold over 80 per cent of the market.
The report also emphasized the importance of promoting local fintech entities in alignment with the Make in India initiative, urging concerted efforts to nurture indigenous players in the fintech space. This raises important questions about the need for a level playing field for all players in the digital payments industry, regardless of their size or origin.
This issue has far-reaching implications for the future of India’s digital payments landscape. While it is important to encourage competition and innovation in the fintech space, it is equally important to ensure that smaller indigenous players have a fair chance to compete with larger, foreign-backed companies. The government must carefully consider the implications of allowing just a few companies to dominate the market, as this could stifle innovation and limit consumer choice.
In my opinion, it is crucial for the government to take proactive measures to promote the growth of domestic fintech companies and create a more diverse and inclusive digital payments landscape. By supporting indigenous players and implementing measures to ensure fair competition, the government can help to foster a more vibrant and innovative fintech ecosystem that benefits both consumers and the wider economy. This will require a careful balance of regulation and incentives to ensure that all players have an equal opportunity to thrive in the digital payments market.