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A deeper look into letter by SBI union and others that demands RBI to scrap digital payments plan

A union representing India’s largest public bank along with a coalition of labour unions and NGOs requested the Reserve Bank of India to reject applications of “profit-making” big companies, especially Amazon, from setting up alternate payment systems. Reuters reported on this first on April 8.

Amazon, Google, Facebook and others have applied to set up New Umbrella Entity (NUE) — a parallel payment ecosystem proposed by RBI to reduce concentration risks in the payment sector. This would rival the quasi-public National Payment Corporation of India (NPCI), which is currently the main operator for digital transactions in the country.

State-run State Bank of India’s union All India State Bank of India Staff Federation (AISBISF), labour unions and NGOs under the banner of UNI Global Union, IT for Change and the Joint Action Committee Against Foreign Retail and E-Commerce (JACAFRE) wrote a letter in this regard to the RBI.

The letter, reviewed by the MediaNama, urged the RBI to scrap the licensing process of NUE and to reject the application of the Amazon consortium because it “lacks the record of fairness and integrity as mandatorily required for approval of application under the framework” and also because the company is under scrutiny by the Enforcement Directorate and Competition Commission of India.

“We look at the existing digital payment interoperability platforms like the UPI, regulated by the RBI, to be like a natural monopoly. While innovation in the digital payment segments can take place in the periphery, when it comes to interoperability there should be a single system. There is no need for a parallel digital payment exchange especially when run on a for profit basis,” Parminder Jeet Singh, Executive Director for IT For Change told MediaNama.

Sanjeev Kumar Bandlish, General Secretary of All India State Bank of India Staff Federation (AISBISF), another signatory to the letter echoed similar sentiments and said, “We will like the Reserve Bank of India not to give up essential and infrastructural tasks related to currency, finance and banking to corporate entities, for them to run such essential infrastructure for profit, and entrenching their corporate power. NPCI and UPI are doing good work under RBI’s close regulation and monitoring and we are fully opposed to opening up parallel for–profits systems which would not be in the public interest.”

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Key arguments in the letter to RBI

Why is there a need for NUE in the first place?: The signatories of the letter contested the very need of setting up NUEs alongside NPCIs by asking RBI why it wanted to “squander the advantage of having public and regulatory control” in an area where other countries are struggling. “We should not be looking for creating value in this layer, but to maximize how this core infrastructural layer helps greatest value creation in the whole of economy. It is therefore not a layer that needs competition and profit making, which are ideas behind NUEs,” the letter read.

Unthinkable’ that MNCs are allowed to be a part of this: Signatories slammed the idea of ‘profit-making MNCs to be a part of a consortium applying for NUE license. It opined that NUE will make a profit through payments by “abuse of data that is generated or trapping people in one captive digital payments ecology…” If the proposal goes through, the unions and NGOs urged RBI to disallow those applicants who are likely to control over the digital payment infrastructure for “problematic vertical and horizontal integrations”.

Spirit of competition should be adhered to: Keeping in context the framework that’s been decided by the RBI to include private players for setting up alternate payment systems, signatories to the letter urged the Central bank to not grant permission to those which “may unduly and selectively use it for the commercial advantage of themselves and their related entities and to the utter disadvantage of all other stakeholders, including and most importantly citizens of India…”

Signatories’ contention regarding Amazon

Amazon does not meet RBI’s framework for setting up NUE: Quoting the underlined framework of RBI for setting up NUE, the letter said that entities that operate as alternate payment systems should “fulfil its policy objectives and ensure that principles of fairness, equity and competitive neutrality”. The letter claims that Amazon does not meet that criterion.

The letter also quoted the framework’s points regarding companies conforming to RBI’s “Fit and Proper criteria” — which underline that a group company should have financial integrity, good reputation and character and so on. It made a mention of Rampur Distillery Co Lt v Company Law Board (1969) wherein the Supreme Court reportedly said that when it came to the ‘fit and proper’ criteria’ past conduct cannot be ignored.

“In this regard, it is pertinent to note that records of Amazon as an entity goes contrary to the principles of equity and fairness, and it is being investigated for its unfair, abusive and anti-competitive conducts in a number of jurisdictions, including in India,” it read.

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Several investigations underway against Amazon: While arguing its case for disallowing Amazon from applying for setting up NUE, the signatories listed several investigations and cases that the MNC is currently embroiled in

  • Enforcement Directorate: The letter said that Amazon was being investigated by the Enforcement Directorate (hereinafter referred to as “ED”) for violation of Foreign Direct Investment Rules of India under the provisions of Foreign Exchange Management Act, 1999 (hereinafter referred to as “FEMA”) and Foreign Exchange Management (Non-debt Instruments) Rules, 2019 (hereinafter referred to as “Non-debt Rules”). “Several Writ Petitions have been filed against Amazon by small traders and trader associations alleging the violation of FEMA and seeking directions from the High Court to direct the ED to investigate the alleged violations. While deciding such writ petitions, the Hon’ble Delhi High Court was informed that the ED is investigating the conducts in light of the provisions under FEMA and allied Rules thereunder,” it added.
  • Competition Commission of India: The signatories said CCI had started an investigation against Amazon and its business practices and the body has material on record to prima facie show that Amazon was allegedly using its market power to engage in the practice of preferential treatment of selected sellers, deep discounting and exclusive arrangements. “The fact is CCI, which is an expert body to regulate competition in the market, has found glaring evidence against Amazon, which indicates that it has been distorting the competition in the market. It is interesting to point out that CCI released a market study too (CCI study on e-commerce) wherein CCI clearly noted the business malpractices and anti-competitive practices of Amazon,” the letter said.
  • US government: While quoting the Investigation of Competition in Digital Markets report by the US House of Representatives, the letter said that Amazon has been engaged in ‘extensive anticompetitive’ conduct in its treatment of third-party sellers on its platform. The letter said that Amazon’s position in the market gave it a collection of highly sensitive consumer data, which Amazon can use to disadvantage its consumer. The investigation is also being carried by the Federal Trade Commission of USA in regard to complaints filed against Amazon, it added.
  • European Union: The letter said, “In the European Union, Amazon is being investigated for allegedly violating the competition law of European Union, for its dual role on its e-commerce platform as a seller and the owner of the marketplace, which Amazon allegedly uses to the disadvantage of those sellers.”
  • Japan: In Japan, Amazon was being investigated for its unfair vendor terms with sellers on its platforms. Amazon reportedly later accepted a settlement with Japan Fair Trade Commission by agreeing to pay close to USD 19 million to its settlers and change the terms of the agreement with its sellers in Japan, the letter said.

Amazon can abuse data and use it for its own profit: The signatories pointed out that RBI’s framework for setting up NUEs does not explicitly oblige companies to protect users’ personal data. “This must be seriously considered, due to lack of any data protection framework for NUEs or any special obligations on the entities, it is particularly important to review the Applications under the Framework through the lens of data protection and such data concentration would be used by the private entities. It is more important in respect of Amazon, concerning the past conduct of Amazon with respect to data,” they added.

  • European Commission has been investigating Amazon for use of non-public independent seller data
  • Internal audit of Amazon allegedly revealed that 4,700 of its workforces working on its own sales had unauthorized access to sensitive third-party seller data
  • Amazon is also facing suit in Germany over the claims that it is continuously transferring the data to the United States, which is in violation of privacy laws of EU.

“In this light, it would be no surprise if Amazon intends to obtain the NUE approval primarily for the valuable commercially sensitive data and consequently to exploit the same to get the undue benefit.,” the letter read.

Also read

Update June 9, 6.25 pm: The beginning of the second paragraph has been rewritten for more clarity. The sub-headline “A deeper look at their representation to the RBI” has been changed to “Key arguments in the letter to RBI”

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Among other subjects, I cover the increasing usage of emerging technologies, especially for surveillance in India

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