The Unified Payments Interface (UPI) has revolutionized digital payments in India, propelling the nation towards a cashless economy. It has become ubiquitous, used in every street and corner, simplifying financial transactions for millions. However, amidst this phenomenal success, a significant concern has emerged, questioning its long-term stability. Experts from the fintech sector have issued a crucial warning to the government and the Reserve Bank of India (RBI), highlighting a growing 'concentration risk' within the country's digital payment system.
The Duopoly's Grip: A Growing Threat
According to a report by Moneycontrol, the industry body India Fintech Foundation (IFF) has revealed that over 80% of all digital transactions conducted via UPI in India are handled by just two Third-Party App Providers (TPAPs), Basically two dominant mobile payment applications. This situation is a cause for serious concern as it makes the entire digital payment system of the country excessively reliant on a select few entities. Should the services of either of these two major apps be disrupted for any reason—be it a technical glitch, a cyberattack, or any other operational issue—it could have a direct and widespread impact on the entire UPI network, causing significant inconvenience to millions of users and businesses across the nation.
Fintech Industry's Urgent Warning to Regulators
On October 29, 2025, the India Fintech Foundation (IFF) dispatched a detailed letter to both the Ministry of Finance and the Reserve Bank of India (RBI) to apprise them of this critical situation. The letter explicitly states that UPI is currently grappling with 'severe concentration risk,' which poses a substantial threat to the robustness of the nation's digital payment infrastructure. In its warning, the IFF underscored the imperative need to foster greater competition within the market to maintain a strong and resilient digital payment ecosystem. They advocate for a level playing field for other applications to prevent monopolistic tendencies and introduce much-needed diversity into the system. Ensuring that no single point of failure can cripple the entire system is paramount for national financial security.
Understanding Concentration Risk and Its Implications
'Concentration risk' refers to the excessive reliance of any system or market on a limited number of players. In the context of UPI, with only two apps managing over 80% of transactions, this creates a profound risk. In such a scenario, if these dominant apps encounter any technical malfunction, it could potentially bring the entire nation's payment network to a standstill. Similarly, a major cyberattack on these apps couldn't only compromise the. Security of financial data but also erode the trust of millions of users. Also, any policy disputes or regulatory challenges involving these apps could have widespread economic repercussions. This risk could be detrimental to both the economy and ordinary citizens, potentially leading to financial instability and disruptions in daily life, hindering the very progress UPI aims to achieve.
Record UPI Transactions Amidst Underlying Risks
Data released by the National Payments Corporation of India (NPCI) indicates that UPI has set new records in transaction volumes in recent months, while in September 2025, UPI facilitated a staggering 19. 63 billion transactions, amounting to a total value of approximately ₹24. 90 lakh crore. Prior to this, in August 2025, the number of transactions had already surpassed the 20 billion mark, showcasing the incredible pace of digital transaction adoption and widespread acceptance in India. These figures clearly demonstrate that UPI has become an indispensable part of the Indian economy. However, despite this impressive growth, the fact that the majority of these transactions are controlled by a few select companies means the system is advancing with an inherent risk, while this situation further accentuates the need for a solid and diversified digital payment ecosystem to ensure sustained growth and stability.
Suggested Solutions: Fostering a Diverse Ecosystem
In its letter, the IFF has proposed that the government,. RBI, and NPCI collaborate to modify the existing UPI Incentive Mechanism. The primary objective of this policy change is to provide greater encouragement and incentives to smaller and newer Third-Party App Providers (TPAPs). The IFF believes that such incentives would foster healthy competition within the UPI market, thereby dismantling monopolistic structures and cultivating a more diverse and resilient digital payment ecosystem, while this approach wouldn't only enhance the stability of the system but also stimulate innovation and offer more choices to users. A balanced market structure is crucial to ensure that India's digital payment future remains secure, inclusive, and capable of adapting to evolving technological landscapes.
Ensuring the Long-Term Stability of India's Digital Backbone
UPI stands as a critical pillar for India's digital economy, and to sustain its success, it's imperative to address its inherent vulnerabilities, while taking proactive steps to mitigate concentration risk and promote competition is vital for the nation's financial stability. The government, RBI, and NPCI must collectively devise a strategy that not only expands UPI's reach. But also ensures that the system doesn't remain concentrated in the hands of a few players. A diverse and competitive ecosystem is the only way to secure and strengthen India's digital payment future, allowing millions of Indians to benefit from the benefits of digital transactions without apprehension, thereby safeguarding the progress made in digital inclusion.
