Third-party application provider (TPAP)

Third-party application provider (TPAP)

Subject :Economy

Background:

• NPCI in 2020 came up with a directive to cap the share of transactions a third-party application provider (TPAP) could process at 30 per cent of the volume of transactions handled on UPI, effective January 1, 2021, which is to be calculated on the basis of the volume of transactions processed during the preceding three months.
• The NPCI had proposed a 30 per cent volume cap for third-party app providers (TPAP). Currently, there’s no cap on volume and Google Pay and PhonePe hold the market share of about 80 per cent.
• The timelines for compliance of existing TPAPs who are exceeding the volume cap, is extended by two (2) years i.e. till December 31, 2024 to comply with the volume cap

Third-party application provider (TPAP)

• TPAPs refer to (API) are either standalone applications or applications that add functionality to an existing parent program / system.
• The UPI ecosystem is designed for banks. Only a banking entity can directly interact with the UPI switch. However, non-banking entities can participate by partnering with a banking entity which is already on UPI platform, and developing their own APIs referred to as third party apps.
• The role of these entities is more in the nature of facilitator for transactions as the entire operational and financial liability of transactions originated through third party app lies on the bank. There are over 20 TPAPs (eg., Google Pay, WhatsApp etc.) in UPI.
• A third party app sends a request to the linked banking application for permission to access the user’s bank details, which is further relayed by the banking application to the customer to authenticate the request.
• These apps provide flexibility and freedom to consumers to select solutions they find most convenient to meet their financial needs.This architecture balances regulatory safety and innovation as it combines the safety and trust of banking institutions with the informality and convenience offered by non-banks.
• In the payment space, third party service providers are primarily in the form of payment gateways, payment aggregators and TPAPs in UPI.
• Leveraging further on the system, a multi-bank model has been introduced for large TPAPs which allows them to tie-up with multiple banks to act as PSPs. As in the case of single bank model, the TPAPs provide only customer interface, while the transactions continue to be processed through the underlying PSP bank.