The National Payments Corporation of India (NPCI) is feeling the pressure as the Reserve Bank of India (RBI) will issue licenses, in the coming months, to a consortium of financial services players who will set up New Umbrella Entity (NUE) for retail payments. Under the NUE policy of the central bank, the NPCI will have one or more rival retail payments organisations to compete with.
“This story actually puts a lot of pressure on the NPCI’s management team and the thousand employees of the NPCI. We believe we need to do a lot more. The game has just started and there is a lot more for NPCI to do,” said Dilip Asbe, chief executive officer and managing director, NPCI. He was speaking at the virtual launch of Paytm’s Soft Point-of-Sale solution for merchants.
“With this whole NUE conversation, there is a lot of pressure on the NPCI to kind of continue the innovation journey, and I fully agree (with RBI) that we need more innovation in the payments system, options for the customers, more secure systems, more power to the customers while doing digital payments”— Dilip Asbe, chief executive officer and managing director, NPCI
Asbe said that the NPCI was created as a public good and that it had a very high expectations from the regulator and the government. “I would give a lot of credit to the RBI, the Indian Banks’ Association and the promoter banks to be able to build an institution like the NPCI and scaling it up to this level,” he said.
Speaking at the same event, TR Ramachandran, group country manager India and South Asia, Visa s,aid given that the payments system is systemically important infrastructure, the RBI’s rationale for the NUE is that they do not want concentration risks and a single point of failure.
“The heterogeneous nature of the Indian market means that one size does not fit all. You need various verticals, whether it is B2B payments or remittances both of which are under-penetrated in the country.” — TR Ramachandran, group country manager India and South Asia, Visa
Paytm is also in the race to set up a NUE which could focus on transit, remittance and business payments among merchants, Vijay Shekhar Sharma, founder and CEO, Paytm told the Economic Times on Tuesday. The company’s NUE consortium is diverse as it includes a large commercial bank, a small finance bank, a payments bank, two non-bank lenders, a fintech player and an ATM service provider, he said.
Why RBI called for NUE licenses
At present, the NPCI is the sole retail payments organisation in the country. It owns and operate 10 payments platforms or rails, which together processed over Rs 128 lakh crore transactions in the current financial year. Since the NPCI operates as a monopoly, the RBI is concerned about concentration risks and issues with innovation and efficiencies that arise when an organisation has no competition. Therefore, last year the central bank invited interested parties to apply for a license to set up a retail payments organisation on similar lines to the NPCI. However, the RBI has allowed the applicants to be profit-making unlike the NPCI which is a Section 8 or not-for-profit company.
There are a total of four groups of companies applying for a NUE license:
- Kotak Mahindra Bank and HDFC Bank, which have have roped in the Tata Group, Mastercard, Airtel Digital, Flipkart and PayU
- IndusInd Bank, which has joined hands with Paytm, Ola Financial Services, Centrum Finance, Zeta Pay, Suryoday Small Finance Bank and Electronic Payment and Services
- ICICI Bank and Axis Bank, which are working with Visa India, the National Stock Exchange, BillDesk and Pine Labs
- Yes Bank, which is is backing the combine of So Hum Bharat Digital, Reliance Industries, Google and Facebook
MediaNama published a FAQ on why the RBI wants to create a rival organisation(s) to the NPCI.
- Deciphering NPCI’s dominance in digital payments
- So Hum Bharat Digital aims to deepen, expand the digital payments ecosystem
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