UPI - TPAP (Third Party Application Provider)

Understanding TPAP License

TPAP stands for Third Party Application Provider. It refers to entities that provide applications or platforms enabling customers and merchants to initiate and receive UPI payments. These TPAPs act as intermediaries, connecting the various stakeholders involved in a transaction and ensuring its smooth execution. They play a crucial role in the UPI ecosystem, facilitating millions of transactions every day.

As the digital payment landscape continues to evolve, the role of payment aggregators becomes increasingly important. These entities facilitate seamless transactions between customers, merchants, and banks, ensuring a smooth and secure payment experience. To operate as a payment aggregator in India and participate in the Unified Payments Interface (UPI), it is essential to obtain a Third Party Application Provider (TPAP) license from the National Payments Corporation of India (NPCI).

To operate as a TPAP in the UPI ecosystem, service providers must obtain a TPAP license from NPCI. This license signifies compliance with NPCI's rules and regulations, ensuring the security and integrity of the UPI platform. The TPAP license is essential for TPAPs to offer their services to end-users, banks, and merchants.

The TPAP license is a crucial requirement for entities looking to operate as payment aggregators in India and participate in the UPI ecosystem. By obtaining a TPAP license from NPCI, entities can offer their customers a seamless and secure payment experience. It is essential to carefully follow the registration process, meet the eligibility criteria, and provide all the necessary documents to ensure a successful application. With the rapid growth of digital payments in India, obtaining a TPAP license opens up immense opportunities for entities to thrive in the ever-evolving payment landscape.

The Role of NPCI

The National Payments Corporation of India (NPCI) is the organization responsible for developing and operating the Unified Payments Interface (UPI) platform. NPCI sets the rules, regulations, and guidelines for UPI participants, including TPAPs. It ensures the safety, security, and efficiency of the UPI system and network.

NPCI's primary responsibilities include:

1. Approval of participants: NPCI approves the participation of Issuer Banks, PSP Banks, TPAPs, and Prepaid Payment Instrument issuers (PPIs) in UPI.
2. Transaction processing and settlement: NPCI handles the processing and settlement of UPI transactions, ensuring smooth and secure fund transfers.
3. Dispute management: NPCI provides a framework for managing disputes related to UPI transactions, ensuring fair resolution.
4. Auditing and data access: NPCI can conduct audits on UPI participants and access their data, information, and systems as required.
5. Regulatory compliance: NPCI ensures that all UPI participants comply with applicable laws, rules, regulations, and guidelines.

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Eligibility for TPAP License

TPAP licenses are granted to entities that meet certain eligibility criteria set by NPCI. While specific criteria may vary, generally, the following entities are eligible to apply for a TPAP license:

1. Registered companies: Entities registered under the Companies Act, 2013, or any other relevant legislation can apply for a TPAP license.
2. Financial institutions: Banks, non-banking financial companies (NBFCs), and other authorized financial institutions can also apply for a TPAP license.
3. Payment aggregators: Payment aggregators that facilitate merchant transactions on UPI may also require a TPAP license, depending on NPCI's guidelines.

Benefits of TPAP License

Obtaining a TPAP license offers several benefits to service providers operating in the UPI ecosystem. Some of the key benefits include:

1. Legitimacy and trust: A TPAP license from NPCI adds credibility and trustworthiness to a service provider, assuring users, banks, and merchants of their compliance with UPI regulations.
2. Access to UPI platform: TPAPs with a license gain access to the UPI platform, enabling them to provide a wide range of services to end-users.
3. Seamless integration: A TPAP license ensures seamless integration with banks and other UPI participants, facilitating efficient transactions.
4. Dispute resolution: Licensed TPAPs can leverage NPCI's dispute management framework to resolve any conflicts or issues that may arise during transactions.
5. Regulatory compliance: By obtaining a TPAP license, service providers demonstrate their commitment to complying with applicable laws, regulations, and guidelines.

IS TPAP License Mandatory?

While the TPAP license is not mandatory for all service providers, it is highly recommended for entities operating in the UPI ecosystem. Licensed TPAPs enjoy various benefits, including access to the UPI platform and credibility among users, banks, and merchants. Moreover, obtaining a TPAP license ensures compliance with NPCI's regulations, ensuring the security and integrity of the UPI ecosystem.

Payment aggregators, in particular, may find it necessary to obtain a TPAP license as they facilitate merchant transactions on UPI. NPCI's guidelines regarding TPAP licenses for payment aggregators may vary, and it is important for these entities to stay updated with the latest regulations.

Registration Process for TPAP License

The registration process for obtaining a TPAP license involves several steps. It is important to follow these steps diligently to ensure a smooth and successful application. Here is a step-by-step guide to the TPAP license registration process:

1. Eligibility check: The applicant must ensure they meet the eligibility criteria set by NPCI for TPAP licenses.
2. Preparation: Before starting the registration process, gather all the necessary information and documents required for the application. This includes details about the entity, its directors, shareholders, and key personnel.
3. Online Application: Visit the official NPCI website and navigate to the TPAP license registration section. Fill out the online application form with accurate and up-to-date information. Make sure to provide all the required details, including the entity's legal name, registered address, contact information, and other relevant information.
4. Document Submission: Upload all the required documents as specified by NPCI. These documents may include the entity's certificate of incorporation, Memorandum and Articles of Association, KYC documents of directors and shareholders, financial statements, and any other documents deemed necessary by NPCI.
5. Application Review: NPCI will review the submitted application and documents. This review process ensures that the entity meets the eligibility criteria and has provided all the necessary information.
6. Verification and Assessment: NPCI may conduct a thorough verification and assessment of the entity's background, financial stability, compliance with regulatory requirements, and other factors. This step is crucial to ensure the integrity and security of the UPI ecosystem.
7. Approval and Issuance: If the application is deemed satisfactory and meets all the requirements, NPCI will approve the TPAP license and issue it to the entity. The license will enable the entity to operate as a TPAP and participate in the UPI ecosystem.
8. Compliance and Ongoing Obligations: Once the TPAP license is obtained, the entity must comply with all the regulations and guidelines set by NPCI. This includes regular reporting, adherence to security standards, and ongoing compliance with UPI regulations.

Documents Required for TPAP License

The documents required for TPAP license registration may vary depending on the nature of the entity and regulatory requirements. However, some common documents that are typically required include:

• Certificate of Incorporation
• Memorandum and Articles of Association
• KYC documents of directors and shareholders
• Financial statements (audited or self-certified)
• Business plan and operational details
• Security and privacy policies
• Any other documents specified by NPCI

It is important to note that these documents should be accurate, up-to-date, and in compliance with the regulatory requirements set by NPCI.

Should Payment Aggregators opt for TPAP License?

Payment aggregators play a crucial role in facilitating digital payments. They act as intermediaries between merchants, customers, and banks, providing a streamlined platform for payment transactions. While payment aggregators are not mandated to obtain a TPAP license, it is highly recommended for them to do so. Obtaining a TPAP license enables payment aggregators to leverage the UPI ecosystem and provide their customers with seamless UPI-based payment solutions.

Exemptions & Compliance

NPCI recognizes that sudden disruptions in the market should be avoided when the 30% market share cap for TPAPs is reached. To address this, NPCI has provisions for exemption, allowing TPAPs to continue their operations for a limited time period of up to six months. This exemption is granted based on the merits of each case, and TPAPs must request it through their PSP Bank upon breaching certain threshold(s).

However, it is crucial for TPAPs to ensure compliance with the volume cap to avoid penalties and disruption in their operations. Non-compliance with NPCI's regulations may result in penalties and other consequences, as outlined in the UPI Procedural Guidelines.

SOP For Market Share Cap for TPAP by NPCI

A detailed synopsis of the Standard Operating Procedure (SOP) for Market Share Cap for Third Party Application Providers (TPAP) by NPCI, including the annexures:

Background and Objective The UPI platform has become a preferred payment option for customers, recording over 2 billion monthly transactions in November 2020. To provide diverse opportunities to the UPI ecosystem, a 30% volume cap for a TPAP in UPI is mandated. The objective of this document is to establish a SOP for monitoring the market share cap for a TPAP and take corrective steps in case of any breach by a TPAP.

Methodology The design principle used in this SOP to control the Volume Cap is by means of user onboarding on the TPAP's payment platform. There will be a provision to exempt the players to some extent when the Volume cap is reached, so that it does not create sudden disruption in the market.

Calculation of TPAP Market Share The SOP outlines the points to be considered for calculating the Market Share of a TPAP, including the total volume of UPI transactions, TPAP UPI transactions, on-us transactions, total volume of the TPAP, pre-approved B2C and B2B transactions, and the identifier for a TPAP.

Monitoring UPI transaction threshold The Volume Cap of a TPAP shall be monitored and communication on reaching the following thresholds shall be made to the respective TPAP. There are three levels of alerts based on the market share of TPAP.

Compliance to the Volume Cap for existing TPAP The existing TPAPs, which are exceeding the Volume Cap will have a period of two years to comply with the SOP in a phased manner.

Exemption Upon breach of threshold(s), basis request by TPAPs through their PSP Banks, there will be a provision to exempt the players to some extent when the Volume cap is reached.

Customer Communication TPAP and PSP Bank(s) shall communicate to new customers in the event of moderated onboarding or stopping of complete onboarding.

Action on non-compliance NPCI is authorized to penalize the non-compliant TPAP under the provisions of the UPI Procedural Guidelines.

Reporting The Volume Cap for a TPAP shall be effective from 01st January 2021 and the approved logic to calculate the Total Volume of the TPAP shall be uniformly reported on the NPCI website.

Validity and authority to modify the SOP NPCI has issued this SOP, as indicated in the Volume Cap Circular. The SOP shall be reviewed at least once every six months to ensure the objectives of the SOP are met without customer inconvenience to the extent possible.

On-us Transations in UPI means those transactions which are not processed and settled through the UPI Central System which have to be reported to NPCI by PSP Bank(s) on a monthly basis before the 3rd day of each following month.