Armageddon Final Case: Fintech – UPI Payment Solutions

Over the last 5 years, the Indian FinTech ecosystem has shown a rapid growth with creation of
more than 67% of the 2100+ existing FinTech startups during this period. The total value of
this industry currently stands at around USD 50-60 billion including 1 Decacorn, 7 Unicorns
and 40+ startups having crossed the USD100 million mark. Various factors have contributed
to this sharp growth trend including the large FinTech investment flows from the significant
demand and digital adoption in India especially in the last 2 years due to COVID-19, venture
capitals and angel investments, developing digital infrastructure and a good human resource
market.
Type Frequency
Decacorn 1
Unicorns 7
Soonicorns 5
Century Club 39
Minicorns 200+
Early Stage 1800+
Total value USD 50-60 Billion

Although sectors like lending have taken a hit, there are many sectors which have thrived due
to the above-mentioned factors. One such sector is the mobile payment platforms which have
provided services like stored-value wallets and UPI payments for both P2P and P2M
transactions. From March 2020 to January 2021, UPI payments have increased almost 3x its
value before the pandemic while the share of other payment modes like wallets, credit and debit
cards has declined.
UPI Payments Market
Unified Payments Market, or UPI, is a system that powers multiple bank accounts into a single
mobile application, thereby merging several banking services, fund routing and merchant
payments under one hood. Ever since its launch in 2016, it has been growing monumentally as
the preferred mode of transaction with benefits for all involved stakeholders. It has consistently
achieved milestones by recording 1 billion transactions in October 2019 and doubling that to 2
billion transactions in October 2020.

Volume of UPI digital payments across India

FY 2017-2021
25000 22330.7
Volume (in millions)

20000
15000 12518.6

10000
5353.4
5000
17.9 915.2
0
FY 2017 FY 2018 FY 2019 FY 2020 FY 2021
Year

Various surveys as well as statistics have indicated a consumer preference for UPI over other
methods of payment, especially during the COVID-19 pandemic with social distancing
concerns becoming widespread. As per RBI, the transaction value via cards has dropped from
INR 1,511 billion to INR 1,262 billion between January 2020 and September 2020. During the
same period, the value of transactions via prepaid payment instruments (PPIs) also decreased
from INR 183 billion to INR 166 billion. However, the value of UPI transactions during the
same period increased from INR 2,162 billion to INR 3,290 billion.

Value of UPI digital payments across India FY

2017-2021
60,000
50,039.62
Value (in INR billion)

50,000
40,000
30,000 23,220.47
20,000 12,168.76
10,000 2,028.10
151.19
0
FY 2017 FY 2018 FY 2019 FY 2020 FY 2021
Year
The Threat of an Oligopoly
Since the inception of UPI in 2016, only three apps – PhonePe, Google Pay and Paytm – have
been dominating the top list and no other players have been able to challenge them. According
to the NPCI data, their collective market share in April was 91.5%. However, a few other
applications have been able to make a mark for themselves including the Amazon Pay, BHIM
UPI, CRED, Yes Bank app and the newly launched Whatsapp Pay.

Both Google Pay and Paytm recorded a decline in their market share while the Walmart-backed
PhonePe emerged as the leader during the pandemic. Amazon Pay, having entered the UPI
space in mid of 2019, was unable to match the popularity of these top 3 apps but it has continued
pouring in the investment to upscale its payment business. Moreover, even Facebook’s
WhatsApp Pay hasn’t been able to gain popularity for digital payments and could not manage
to cross a volume of 1 million since its launch in November, 2020.

Although some of the smaller players like CRED, Yes Bank and Axis Bank apps and BHIM
UPI have seen an increase in the usage, the market share remains insignificant as compared to
the top 3 players. Their presence since the beginning has made entry and sustenance of any
new players difficult.
Institutional Challenges
In December 2019, the government decided to abolish the merchant discount rate (MDR) and
made the transaction fee on UPI payments zero. This worked in the favor of UPI but led to
other major concerns like loss of revenues, survival of payment gateway entities, job losses,
reducing innovation as well as a decline in the growth of country’s digital infrastructure.
Consequently, in March 2020, some banks made an effort to address these concerns by
charging a fee (INR2.5/5 + 18% GST) for P2P transactions, but this effort was shut down by
the Central Board of Direct Taxes (CBDT) in the following August. The hope is that MDR will
return soon which may have a negative impact on the UPI usage.

Moreover, with players like PhonePe, Google Pay and Paytm cornering a major pie of the
market, NPCI has mandated that starting January 2021, each of the TPAPs such as Google Pay,
PhonePe and Paytm, would not be allowed to process more than 30% of the total volume of
transactions on the UPI network. This market share cap has been imposed to ensure that India’s
digital payments landscape does not become an oligopoly, while also preventing risks of
overload of the UPI infrastructure. Existing TPAPs that exceeded the 30% cap as of December
2020, have been given a period of two years to comply allowing some time to both Google Pay
and PhonePe to reduce their market shares.

The RBI has also decided to expand the market by allowing private companies to operate as
NPCI, enabling digital payments via UPI and other payment modes, with an aim to bring in
enhanced competition. In order to de-risk India’s retail payments ecosystem where NPCI
currently holds a dominant position, the proposed umbrella entities will create a rival
mechanism which will then be used by banks and fintech companies for retail transactions.
Once licensed by the RBI, the new entities can own and operate a private payments network
like UPI holding similar powers enjoyed by the NPCI. As the deadline for the bids expired on
March 31, 2021, nearly a dozen companies/ joint ventures—led by the Tata group, Reliance
Industries, ICICI Bank, Paytm, and several other banks—have approached the RBI seeking the
new license.

Various threats to the existence of small and large UPI payment players in India are operating
from both within and outside the sectors. The government’s decision may enhance competition
through allowing new entrants, but it could also mean a doomed future for the smaller players
already struggling against the 3 giants.
 Problem statement
You are the CEO of company X, operating in the domestic UPI space. You are faced with the
challenge of navigating your company through these difficult times for the UPI players. Your
aim is to increase your revenue within a time frame of 5 years, by formulating a strategy for
sustainable growth.

1. Pick a company X and justify your choice. This can be a large or a small player within
the Indian UPI payment space
2. You should do an industry analysis and project the direction you expect the industry to
take in the given time horizon.
3. Your strategy to achieve the given objective will depend on the company you choose
and alignment with its current strategy and the industry’s direction.
4. Your strategic plan should be backed by real-world data and financial analysis.

Submission Specifics

Your submission should consist of 6 PPT slides (excluding title) and 1 appendix (optional).
You can embed any supporting excel sheet (only 1) in the appendix.

Evaluation

1. Uniqueness and justification of the choice of X

2. The coherence of strategy vis-à-vis the current business plan and direction of the
industry
3. Feasibility, creativity & persuasiveness of solution (Please note that non-adherence to
hygiene factors might hurt your scores)

The evaluation panel consists of functional experts in Business Policy, Strategy and Marketing.
The onus is upon you to be exhaustive and lucid in your analysis and providing the context of
your choice of X.
References
1. https://web-assets.bcg.com/9e/bb/11de3305496dbef780031efeb6b0/bcg-ficci-report-
india-fintech.pdf
2. https://www.npci.org.in/what-we-do/upi/product-overview
3. https://www.npci.org.in/what-we-do/upi/product-statistics
4. https://www.fortuneindia.com/enterprise/how-upi-is-making-indias-digital-economy-
boom/105433
5. https://www.spglobal.com/marketintelligence/en/documents/indiamobilepayments_20
20finalreport.pdf
6. https://www.thequint.com/tech-and-auto/tech-and-auto/npci-issues-sops-for-upi-apps-
will-this-move-help-small-players
7. https://www.business-standard.com/article/companies/phonepe-retains-top-position-
with-42-upi-market-share-in-january-121020800009_1.html
8. https://economictimes.indiatimes.com/tech/technology/npci-enforces-new-market-
share-rules-on-upi-for-google-pay-phonepe-paytm-others/articleshow/81701508.cms