Google and Walmart are facing a new obstacle in their efforts to broaden the user base of their payment applications within India: regulations will prevent them from expanding beyond a specific threshold.

The National Payments Corporation of India (NPCI), which manages the widely used UPI payment system, announced on Thursday that it will implement a cap to guarantee that no single payment app handles more than 30% of all UPI transactions each month.

According to the payments organization, this action is intended to address potential “risks” and “safeguard the UPI ecosystem” as it continues to grow. While the change takes effect in January 2021, Google Pay and PhonePe will have a two-year period to adjust to the rule “gradually,” the NPCI stated. (The NPCI also approved WhatsApp’s request to broaden its payment service in India.)

UPI is a payment infrastructure developed by major Indian banks and supported by the Indian government. It has rapidly become the dominant digital payment method in the nation.

The 30% cap will be determined by the total volume of UPI transactions processed over the previous three months, the NPCI added.

An industry leader described the move as an unexpected development, and it is expected to significantly affect Google and Walmart, as their respective apps currently process over 35% of UPI transactions apiece.

Specifically, Walmart’s PhonePe facilitated more than 40% of approximately 2 billion transactions on the UPI network last month. Google accounted for around 38% of the transactions.

Sajith Sivanandan, managing director and business head of Google Pay and Next Billion User Initiatives, expressed Google’s surprise in a statement. He continued, “India’s digital payments sector is still developing, and any interventions at this stage should aim to encourage consumer choice and innovation. An open and choice-driven system is essential to maintain this progress. This announcement was unexpected and has implications for the hundreds of millions of users who rely on UPI for their everyday payments, potentially hindering the wider adoption of UPI and the ultimate goal of financial inclusion.”

In a statement, Sameer Nigam, founder and chief executive of PhonePe, said, “We have reviewed the recent NPCI circular and want to assure all our customers and merchants that there is absolutely no risk of any UPI transactions on PhonePe failing. In fact, NPCI’s circular explicitly states that the 30% market share cap does not apply to existing TPAPs like PhonePe until January 2023. PhonePe remains fully committed to ensuring that there is no customer disruption caused by this circular.”

The method by which any payment app will adhere to this limitation remains uncertain. For instance, if PhonePe or Google Pay has already processed around 650 million transactions within three weeks, would they simply disable UPI payments on their app for the rest of the month?

This announcement represents the latest challenge for PhonePe, Google Pay, and Amazon Pay in India. Despite attracting tens of millions of users to their UPI payment apps, they have found it difficult to generate revenue. Currently, UPI lacks a defined business model. During an event in Bangalore late last year, Sivanandan noted that existing regulations have compelled Google Pay to operate in India without a clear path to profitability, and he urged the government to allow them to monetize their payment services.