PhonePe outage rekindles debate on UPI market cap: Should NPCI finally act?

An unexpected outage at PhonePe disrupted UPI transaction processing Monday evening due to a network capacity shortfall that emerged during cybersecurity drills carried out in response to the India–Pakistan conflict. As part of the drills, the company routed all transactions through a new data centre, but a surge in UPI volumes exposed system limitations, causing transaction failures and disrupting services for over an hour.

Users were unable to scan QR codes, make payments, or transfer funds. In a country where UPI is the lifeline of everyday transactions—from kirana stores to cab fares—even a short outage can have a cascading effect.

The outage has once again brought the spotlight back on an uncomfortable truth—the over-dependence on a few players of the UPI ecosystem. As millions of users across the country struggled to make payments, the disruption underscored a question the National Payments Corporation of India (NPCI) has been deferring for years: should the 30% market share cap finally be enforced?

In April 2025, UPI recorded a transaction volume of 17.89 billion and a total transaction value of ₹23.95 lakh crore. According to NPCI’s data, as of April 2025, PhonePe and Google Pay have a combined share of nearly 83% in the real-time payments ecosystem.

Experts say this kind of market concentration is not just a business concern, it’s a systemic risk. A single point of failure is elevated when two players dominate such a high volume of activity, resulting in disorderly services and disruption of services.

Moreover, dependence on two foreign fintech companies, Walmart-owned PhonePe and Google’s GPay is a major risk to the UPI ecosystem, especially in the backdrop of heightened risks following the India-Pakistan conflict.

Additionally, the Reserve Bank of India (RBI), in a policy paper in January 2019, had flagged the dangers of concentration risk in retail payment systems, from a financial stability perspective.

30% market share cap reform

Back in November 2020, NPCI announced its intention to limit the market share of any third-party UPI app provider to 30% of total transaction volume, with a deadline of December 31, 2024. However, the RBI, in a circular dated December 31, 2024, stated, "Considering various factors, the timeline for compliance of existing third-party application providers (TPAPs) who are exceeding the volume cap, is extended by two years, i.e., till December 31, 2026." The reason—to give players time to adjust and avoid user disruption. But in practice, it’s a classic case of kicking the can down the road.

Currently, there are 37 TPAPs that facilitate UPI transactions in India.

Why NPCI needs to act now

PhonePe’s outage is not just a technical glitch; it is an alarming sign. With India aiming for billion-plus UPI transactions per day soon, reliance on just two companies is neither scalable nor safe.

Implementing the 30% cap will not be painless. Existing players can push back, and users may experience some friction as traffic gets redistributed.  NPCI can also implement putting a cap on the digital payments platform at 100 million users, as it has done before for WhatsApp Pay.

The objective of UPI was to create an indigenous Indian system. In contrast, two US-headquartered companies—Walmart and Google—dominate the space now. Even Amazon and WhatsApp, both headquartered in the US, are trying to get a shoo-in. Hence, to prevent further monopoly of the UPI segment and to facilitate more Indian players, the NPCI should start working towards implementing the 30% cap on market share.