07 February 2025 : Indian Express Editorial Analysis

1. Security at its core

(Source – Indian Express, Section – The Editorial Page – Page No. – 10)

UPI: India’s Defining Contribution to Digital Payments

• Unified Payments Interface (UPI) has emerged as a revolutionary force in digital transactions, offering a seamless, cost-free, and highly reliable payment mechanism used by millions.
• By bypassing the traditional dominance of card networks, UPI has fast-tracked India’s digital payments ecosystem by decades.
• Its ubiquity has enabled financial inclusion at an unprecedented scale, making it one of India’s most significant contributions to the 21st-century global fintech landscape.

Concerns Over Market Concentration and Regulatory Response

• The prevailing discourse surrounding the dominance of third-party app providers (TPAPs) like Google Pay and PhonePe focuses on the risks of a duopoly and the regulatory attempt to impose a 30% market share cap.
• However, such measures may be counterproductive, as digital payment markets naturally tend to concentrate due to network externalities.
• Instead of enforcing artificial constraints on market share, regulatory efforts should address more pressing concerns, such as data privacy and security.

Data Privacy Concerns in the UPI Ecosystem

• Unlike traditional payment methods such as credit cards, UPI transactions generate and share a significantly larger amount of consumer data.
• Unlike card networks, which adhere to stringent standards like the Payment Card Industry Data Security Standard (PCI DSS), UPI lacks well-defined data storage standards.
• Furthermore, the data-sharing policies of TPAPs remain opaque, leaving users unaware of how their digital spending habits are being tracked and utilized.
• The presence of multiple intermediaries in UPI transactions increases the risk of data leaks, further exacerbating privacy vulnerabilities.

The Business Model: Free Services at the Cost of Data

• UPI operates without transaction fees, which raises concerns about its reliance on data collection as an underlying business model.
• While it is not as aggressive as social media platforms in behavioral data monetization, the UPI ecosystem still follows a data-extraction model.
• The dominance of data-rich TPAPs allows them to leverage consumer information into adjacent financial markets, such as microloans and insurance, potentially restricting fair competition.
• However, placing arbitrary market-share caps will not address this fundamental issue.

Addressing Data Protection Through Policy Interventions

• With the introduction of the Digital Personal Data Protection (DPDP) Rules, 2025, TPAPs could be classified as significant data fiduciaries, bringing them under stricter regulatory oversight.
• The principle of data minimization, which mandates collecting only the essential data needed for service delivery, could help mitigate risks associated with excessive data accumulation.
• Moreover, purpose limitation—ensuring that data is used strictly for its intended function—could introduce a fairer and more secure digital payments framework.
• While DPDP rules provide exemptions for state agencies processing data for welfare purposes, such exemptions should be restricted to the core infrastructure managed by the National Payments Corporation of India (NPCI).
• Private TPAPs should not be granted similar privileges, ensuring stricter compliance with data governance norms.

India’s Role in Global Digital Payments Governance

• The recent G20 Troika communiqué (India, Brazil, and South Africa) has emphasized reducing data asymmetries and promoting equitable digital governance.
• By implementing robust privacy and security principles within UPI’s framework, India can set a global precedent in financial digital public infrastructure (DPI).
• Establishing stronger data protection norms will not only enhance user trust but also solidify India’s leadership in fintech innovation and financial inclusion.

Conclusion

• UPI has transformed India’s digital payments landscape, but its future sustainability hinges on resolving privacy concerns and ensuring fair competition.
• Instead of focusing on market-share caps, regulatory efforts should prioritize data protection, transparency, and security.
• The DPDP framework provides a unique opportunity to establish a fairer digital payments ecosystem that balances innovation with privacy.
• By proactively adopting these governance principles, India can continue to lead the world in financial digital innovation while safeguarding user rights.