Flipkart, Mastercard and PayU will join the Tata Group-led consortium to create a digital payments New Umbrella Entity (NUE), the Economic Times reported. The three entities will buy a 30% stake together in Ferbine Pvt. Ltd, an entity set up by the Tatas that will operate the NUE under the Reserve Bank of India’s authorisation.
If granted a license the consortium will set up and operate new payments platforms that will compete with the National Payment Corporation of India (NPCI), while also building payments platforms that complement the NPCI’s own. While HDFC Bank and Kotak Mahindra Bank each have a 9.9% stake in the entity, Mastercard and Airtel Digital have bought a 10% stake each, Flipkart’s FlipPay, and Naspers-backed PayU will each acquire a 5% stake in the Tata led NUE, the report said. It added that Tata’s have retained 40% of the company.
The HDFC Bank and Kotak Mahindra Bank combine had initially roped in State Bank of India (SBI) to lead the consortium. However, the Finance Ministry intervened stating that they do not want public sector banks setting up competing institutions to the NPCI. It is not clear if the RBI will mandate all members of a NUE consortium, consisting of banks and payment companies, to divest their stake in the NPCI, if any.
However, SBI has pushed back and told the government that if it is blocked from joining the race to create a NUE it will impede innovation across the sector. According to the Economic Times, SBI told that the government that digital payments transformation can take place independent of the NPCI and that it could work with other state-run banks to operate the NUE.
Apart from the Tata-Kotak-HDFC Bank combine, Paytm-Ola-IndusInd Bank, Amazon-ICICI Bank-Axis Bank and Reliance Industries-So Hum Bharat Digital-Google-Facebook-Yes Bank are all in the race to apply for a NUE license. Last Friday, the RBI extended the deadline for submitting applications for an NUE license to March 31 from February 26, 2021 as stakeholders requested more time to file applications due to “COVID-19 related disruptions and inconveniences.”
The need for an NUE
The idea behind the NUE is to reduce concentration risks, from a security and infrastructure capacity perspective across the digital payments industry as the NPCI today is the only authorised retail payments system operator in the country. In a January 2019 paper, the RBI argued that if the payment system has only a few operators it could led to concentration risk, anti-competitive behavior, inefficiencies and risk the stability of the financial system.
At present, the NPCI manages 10 payment platforms or rails—UPI, Bharat Bill Payments, Aadhaar enabled Payments, FASTag, RuPay, National Financial Switch, Automated Clearing among others—which together has processed over Rs 128 lakh crore worth of financial transactions in the current financial year. Since NPCI is the sole operator of the retail payments platforms, in-charge of research and innovation as well, there are systemic risks that need to be safeguarded, the paper argued.
According to the per the RBI’s guidelines, the NUE(s) can create new payments rails in the retail space for ATMs, White Label PoS, Aadhaar based payments and remittance services. It will have to develop new payment methods, standards and technologies, operate clearing and settlement systems and manage risks such as settlement credit. The guidelines also mandate that the NUE create inter-operable payments platform to complement the NPCI’s existing system.
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