RuPay to UPI credit, NPCI is planning a big recast of its businesses

The corporation, India's umbrella body for retail payments, has already carved out three businesses as wholly-owned subsidiaries—NPCI International Payments, Bharat BillPay and NPCI BHIM Services, three people familiar with the matter said. According to the people cited above, it is planning a restructuring exercise to streamline operations into six broad businesses.

The next in line may be card network RuPay, NPCI's rival to global networks like Visa, Mastercard and American Express which has seen significant growth over the past two years, two of the three people said on the condition of anonymity.

Launched in 2012, RuPay debit and credit cards are issued by over 1,300 banks, according to NPCI. The network is now available in five countries, including Singapore and the UAE. In June 2023, the Reserve Bank of India allowed foreign currency cards on RuPay. In FY24, there were 968 million transactions via RuPay cards, lower than 1.26 billion in FY23. The quantum of transactions remained unchanged at ₹2.4 trillion across both years.

On 13 August, NPCI said it is carving out NPCI-BHIM as a fully owned subsidiary, citing the growing demand for digital transactions and the need to promote financial inclusion. However, industry experts suggested that another driving factor may be to take on private entities such as PhonePe and GooglePay, which dominate the market for UPI transactions. The move to grow BHIM is also aimed at reducing ecosystem dependence on a few large private players, experts said.

UPI data

India recorded about 131 billion UPI transactions in FY24, up from 83.7 billion in FY23, finance minister Nirmala Sitharaman said in April, citing NPCI data. In July, 14.44 UPI billion transactions worth ₹20.64 trillion were processed, up 45% year on year in terms of volume and 35% in terms of value. UPI is now available in seven countries outside India.

“NPCI could then look to segregate its lending business under Credit on UPI," said a third person. Under Credit on UPI introduced in October 2023, NPCI facilitates loans by linking credit cards to UPI IDs, or through pre-sanctioned credit lines extended by banks against UPI IDs.

Also read: What is NPCI’s game plan for the BHIM app?

The NPCI also operates the National Automated Clearing House (NACH), FASTag, Aadhar-enabled payment services (AePS), UPI Lite and UPI 123Pay. The corporation may also look to hive off one of these, the people cited earlier said.

July saw 323 million FASTag transactions, up 9% from a year earlier, worth ₹5,578 crore, up 12% year-on-year. Meanwhile, AePS transaction volumes were 11% lower and transaction value was 18% down to 97 million trades worth ₹24,218 crore in July 2024.

A spokesperson for NPCI declined to comment.

Experts said NPCI's existing subsidiaries have helped it focus better on specific areas.

“A subsidiary has also ensured that even as the tech infrastructure is shared with the parent, each of these verticals would independently be run by a separate team," said Mihir Gandhi, partner and leader, payments transformation, PwC India. “It would be interesting to track how the BHIM UPI subsidiary does as it will have a consumer-facing business."

According to Gandhi, a separate subsidiary could also mean that NPCI is able to introduce more features on its existing products or launch new products.

Others believe that creating subsidiaries helps unlock the business potential of verticals, and aims to provide enough focus and budget, along with an independent machinery.

“For instance, NPCI International is required to liaison with local regulatory bodies in several overseas markets, global payment systems and governments. It requires a very different skillset that the core NPCI team could do and we have already seen adoption of UPI in so many countries," said Parijat Garg, a fintech expert.

NPCI's growth

NPCI International was set up as a subsidiary of NPCI in August 2020 primarily to expand the reach of UPI and RuPay abroad. "It is also a matter of pride for NPCI that several countries such as Asia, Africa and the Middle East have displayed interest towards replicating our model in their own nations," NPCI's managing director and chief executive officer of NPCI Dilip Asbe said at the time.

Also read: RuPay’s made it to Singapore and the UAE. But in Sri Lanka, it faces a hurdle

There has been tremendous growth in digital payments, said the third person, a senior payments industry executive.

“With so many new players coming into the ecosystem and NPCI’s own books also growing, it makes sense for them to start looking at each vertical as an individual business segment which can be allowed to grow on its own," the executive said.

Since the share of other private players has remained low while the proposed volume cap for UPI platforms is expected to be extended, the move to grow BHIM, experts said, is also aimed at reducing ecosystem dependence on a few large private players.

While NPCI is an umbrella organization for retail payments, it also competes with private entities in several segments such as card infrastructure and bill payments. It also grants licences or approves the participation of Issuer Banks, PSP (Payment Service Providers) Banks, Third Party Application Providers (TPAP) and Prepaid Payment Instrument issuers (PPIs) in UPI.

Give this overarching role, segregating business operations into separate subsidiaries seems to be the next step for NPCI to avoid any potential question of bias towards its own products and services, and to ensure that all businesses operate at arm’s length to each other within an open market structure, the experts cited above said.

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“It’s a long-ish exercise. They seem to be looking at each business segment to ascertain which has become too large or that which may not have picked up as expected and needs special attention," said the second person, adding the restructuring exercise could also see some consolidation of existing lines of business within these broad verticals.

An initiative of the Indian Banks’ Association and Reserve Bank of India, NPCI was set up in 2008 as a not-for-profit entity to provide infrastructure to the banking system for physical and electronic payments and settlement systems.

Ten core promoters of NPCI are State Bank of India, Punjab National Bank, Canara Bank, Bank of Baroda, Union Bank of India, Bank of India, ICICI Bank, HDFC Bank, Citibank and HSBC. In 2016, the shareholding was expanded to 56 member banks, following which in 2020, other entities such as Payment System Operators (PSO), payments banks and small finance banks were inducted.