‘Didn’t get any good plan for NPCI rival’

The Reserve Bank of India on Thursday said it didn’t receive any innovative proposal from the industry on creating a rival entity to retail payments umbrella entity National Payments Corporation of India (NPCI), effectively putting it on the backburner three years after issuing the guidelines.

Mint reported on 25 August 2021 that RBI has put this initiative on hold owing to data safety concerns. At least six consortiums, including those led by Amazon, Google, Facebook and the Tata group, applied for the so-called new umbrella entities (NUEs) licences, in partnership with companies such as Reliance Industries Ltd and ICICI Bank Ltd after RBI invited expressions of interest in 2020.

“The objective was to introduce through the New Umbrella Entity mechanism some innovative infrastructural value add facility into the system. We didn’t want something either incremental or a substitute of existing ideas or technology. Of the proposals we have received, we didn’t quite see any innovative or infrastructural solution that had come up,” said Rabi Sankar, deputy governor, RBI at the monetary policy press conference.

RBI had issued guidelines in 2020 for corporates to set up for profit new umbrella entities with an aim to set up, manage, and operate new payment systems in the retail space. The move was aimed at developing a network parallel to NPCI, which can maintain interoperability with services such as UPI and yet foster innovation and inclusion in the payments space.

But Mint had reported that RBI’s step to set up an NUE was met with criticism from bank unions from the start, and neither were state-run lenders happy about their exclusion. The unions raised concerns about allowing foreign entities to set up payment networks in India. The data breaches at several fintechs also could have made RBI to rethink about the risks involved in allowing private sector manage payment transactions.

“I thought their purpose of NUE was primarily derisking and not innovation which is part of their own guidelines,” said one of the applicants who spoke on condition of anonymity.

A large part of the retail payments is processed by NPCI. For example, the popular unified payments interface, or UPI, the Immediate Payment Service, or IMPS, Bharat Bill Pay, Aadhaar-enabled Payment System, and RuPay are some retail payment platforms operated by NPCI, which is incorporated as a non-profit.

With digital payments growing rapidly, many companies were eying a slice of this growing business through the NUE. According to a study by the Ministry of Electronics and Information Technology (MeitY), India’s digital economy expected to swell to $800 billion to $1 trillion or 18-23% of the GDP by 2025.