From Ambani To Amazon, FOMO Drives NUE Applications As Deadline Ends
Passengers completely cover a crowded commuter train in the northern Indian state of Bihar February 19, 2003. Photographer: Sunil Malhotra/Bloomberg News

From Ambani To Amazon, FOMO Drives NUE Applications As Deadline Ends

Everyone wants in — from Mukesh Ambani’s Reliance Industries Ltd. to Jeff Bezos’ Amazon.com Inc.; from card companies to banks. The fear of missing out on the surge in retail digital transactions in India has prompted a motley crew of organisations to come together and apply for ‘New Umbrella Entity’ licences, the deadline for which ends on March 31, 2021.

The NUE—seen as a competitor to the National Payment Corporation of India — will be allowed to run for-profit retail payment infrastructure in India provided its systems are interoperable with those that currently exist. The rules to set up NUEs were laid down by the Reserve Bank of India in August 2020 and the regulator is likely to hand out licences only selectively.

Still, the who’s who of the financial sector and beyond are applying for an NUE licence, according to people familiar with the matter.

Among them:

  • Tata Group, HDFC Bank Ltd, Kotak Mahindra Bank Ltd, PayU and Mastercard Inc. have applied through their NUE entity Ferbine Pvt.
  • Paytm, IndusInd Bank Ltd, Ola Financial, Centrum Financial Services, Electronic Payment and Services or EPS, ZetaPay, PolicyBazaar, Suryoday Small Finance Bank Ltd, and Think360.ai through their NUE entity Foster Payment Networks Pvt.
  • Amazon, ICICI Bank Ltd, Axis Bank Ltd, Visa Inc., Pine Labs and Billdesk have applied through their NUE entity Mopay Services.
  • Reliance Industries, Facebook, Google, Infibeam Avenues and So Hum Bharat Digital Payments have also applied through a yet unnamed entity.

According to a Bloomberg report, two other consortia of government owned banks have applied. Financial Software and Systems is applying with Indian Bank, Central Bank of India, National Bank for Agriculture and Rural Development and India Post Payments Bank Ltd. U.S.-based payments firm FIS joined with Union Bank of India and Punjab National Bank to apply as well.

E-mail queries sent on Saturday to the companies listed above did not elicit responses. EPS declined to comment.

“The rush is all about creating entities similar to NPCI that are also allowed to make a profit, as nobody wants to miss out on the opportunity. But it is hard to tell how effective these replicas would be until we see the extra value they would bring to the table,” said Vivek Ramji Iyer, partner and leader - financial services risk at Grant Thornton Bharat LLP.

One of the key reasons behind setting up of the NUE is to create alternatives to NPCI to prevent a monopoly and concentration risk. While NUEs would have similar functions to NPCI and will also be interoperable, the key differences would lie in what additional services they offer and who owns them, said Iyer.

NPCI, which functions as a ‘not-for-profit’ entity, operates at least 12 payment platforms. These include the unified payments interface and immediate payment service for digital real-time payments, Aadhaar-enabled payment system for micro-transactions, national financial switch that facilitates interoperable cash transactions through a network of shared ATMs, cheque truncation system for bank cheque clearance, Bharat Bill Payment System for recurring bill payments, FASTag for electronic toll collection, and homegrown card network RuPay, among others.

Also read: As Biggies Rush To Apply For An NUE, Where’s The ‘Ah Ha!’ Idea?

What’s New? Everything And Nothing.

While interest in NUEs is running high, what’s new in what they will offer?

“Everything, as innovation will be the big business driver, and nothing as NUEs will be interoperable with the existing systems,” said Vivek Belgavi, partner and fintech leader at PwC India.

The underlying idea is that NUEs will create multiple stable and resilient payment networks which are interoperable, similar to how we have different telecom service providers in the market, he said.

Now, the leaders will be those payment networks that can create innovation-led ecosystems and affordable solutions backed by resilient infrastructure. But that can only be decided once we have several such firms competing with each other for higher market share.
Vivek Belgavi, Partner & Fintech Leader, PwC India

The end customer will not be affected as these entities are interoperable, he said.

The competitive advantage among NUE participants will be driven by their parentage, one of the people cited earlier said on the condition of anonymity.

For instance, an NUE being promoted by Reliance Industries Ltd. will be able to leverage its telecom and retail network for distributing and marketing its services, while a Paytm-promoted NUE will be able to target products to its existing user base, and another one led by Amazon could use its large e-commerce platform.

Besides dismantling the monopoly of NPCI, the intent behind creating NUEs is also to create better versions of existing digital payment platforms such as the UPI and e-mandates that are already offered by NPCI, said Deepak Abbot, a former Paytm executive and co-founder of indiagold.

The idea ultimately is that if multiple digital payment rails exist, the ecosystem of services built each on them will have the flexibility to choose between which rail they want to operate on, he said.

Still Lucrative

Despite questions on the eventual utility of an NUE, there are certain segments within which the industry sees scope for innovation. Offline payments and services targeted at small merchants are among them.

The scope for NUEs is large, according to the second person cited earlier anonymously. These innovations could come through in the offline and contactless transactions space, digital lending, supply chain financing and small merchant-focused payment technologies.

These ventures could also open up space for higher earnings from digital transactions.

If done right, NUEs could make for an excellent revenue source for banks that are increasingly relying of fee-based income to expand their margins. The revenue streams will be derived from fee-based income for processing these transactions, the person cited earlier said.

“There’s something in it for everyone,” said Iyer.

For banks, the additional fee income would mean that they could finally earn from digital payments through add-on services, for companies there is big data that they can leverage to target various products and services, and for the country, there is an evolved digital payments landscape with various firms, each focusing on their expertise, to fuel a cashless economy.
Vivek Ramji Iyer, Partner & Leader - Financial Services Risk, Grant Thornton Bharat LLP.

The creation of NUEs, in turn, is expected to further fuel India's growth in digital payments volume.

Digital payments could make up 71.7% of overall payments volume, with cash and cheques making up the remaining, by 2025, as per the global software firm ACI Worldwide. The report pegged India as the world’s top market with 25.5 billion real-time payments, followed by China that recorded 15.7 billion transactions.

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