NPCI, Its ‘NUE’ Competitor And The Push For Retail Payments
The digital payment service Bharat Interface for Money (BHIM), developed by National Payments Corporation of India (NPCI), is demonstrated during an arranged photograph in Bengaluru, India. (Photographer: Samyukta Lakshmi/Bloomberg)

NPCI, Its ‘NUE’ Competitor And The Push For Retail Payments

The Reserve Bank of India’s plan to create ‘new umbrella entities’ to develop and push technologies for retail payments, could bring in a number of such organisations over time with their own areas of specialisation.

Existing entities ranging from stock exchanges to large payments firms could consider launching for-profit ventures under the RBI’s new rules, said industry executives that BloombergQuint spoke with. These ventures would likely complement the existing platforms run by National Payment Corporation of India rather than compete with or duplicate them, they said.

The Reserve Bank of India issued final guidelines for setting up a NUE on Aug. 18.

NPCI’s Dominance: Dented, Not Broken

When the RBI first proposed the NUE policy, it cited reducing “concentration risk” as one of the objectives of bringing in entities other than the NPCI to build out retail payment platforms.

The numbers justify its concern.

Set up in December 2008, the NPCI has taken over the task of running retail payments platforms that were previously operated and managed by the central bank like the Immediate Payments Service and the Cheque Truncation System. Though the RBI still operates three inter-bank payments systems, over the last few years, the NPCI’s platforms have seen a sharp jump in adoption.

In the current fiscal, the NPCI has processed over Rs 40.72 lakh crore worth of financial transactions across its platforms. In 2019-20, it had processed over Rs 160.9 lakh crore in transactions compared to Rs 136.7 lakh crore the previous year.

However, as part of its rules, the RBI said that any retail payments platform developed by NUEs should be interoperable with the NPCI’s existing platforms. This will ensure that the latter remains relevant even if competition comes in.

This is the right time for experimentation given there are perhaps areas that the NPCI has not explored, a senior payments official familiar with the NPCI’s operations said on the condition of anonymity. But it would be incorrect to think a NUE can take on the NPCI, this person said.

The NPCI already has a large ecosystem and it wouldn’t be viable for the NUE to create a competing UPI platform, for example... So wherever it’s applicable, the RBI has ensured that the NUE’s solutions would need to work seamlessly with the NPCI and other existing systems, whether it is point-of-sale devices, automated teller machines or card networks.
Naveen Surya, Chairman, Fintech Convergence Council

NPCI currently functions as a ‘not-for-profit’ entity. In 2018-19, the NPCI reported a surplus of Rs 306.58 crore up by 34% from the previous year. The financial records for 2019-20 aren’t available yet.

In April this year, the NPCI incorporated a separate entity called NPCI International Payments Ltd. and infused Rs 50 crore into the company, according to documents with the Ministry of Corporate Affairs. NIPL will be responsible for “exporting NPCI’s indigenously developed offerings and technological acumen to foreign markets,” according to an NPCI statement dated Aug. 19.

The official cited earlier said that if “for-profit” entities are entering the space, a level-playing field should be created for NPCI. Payments platforms should remain a “public good”, this person said. He also added that since all the large banks are shareholders in NPCI, it remains to be seen how they respond to competition.

NPCI did not respond to queries sent by BloombergQuint.

NUE: Potential Applicants And Solutions

The RBI’s rules open up the field for a number of potential applicants.

The guidelines say that the applicants must have at least three years’ experience in the payments ecosystem as “Payment System Operator (PSO)/Payment Service Provider (PSP)/Technology Service Provider (TSP).”

Industry executives that BloombergQuint spoke with said potential applicants for a NUE licence could emerge from within stock exchanges, leading payments companies, as well as partnerships between payments firms and technology companies.

It’s imperative to have an alternative retail payments platform to NPCI, said Ajay Adiseshann, founder and chief executive officer, PayMate, a business-to-business digital payments firm. “A single entity controlling the foundation of retail payments could be sub-optimal in the long run with so much ground to be covered,” he said. “The NUE could pave the way for new areas to focus on.”

According to the RBI’s framework, the NUE can develop and operate new retail payments solutions related to ATMs, white-label POS devices, Aadhaar-based payments and remittance services among others.

“The NUE would not necessarily create alternative or competing platforms to NPCI, but rather complementary payments solutions,” said Surya, who is actively considering applying for a NUE licence. It would need to focus on areas where the NPCI does not have a solution and where the use of cash continues to remain high, he said.

Also Read: Coming Soon: The UPI Moment For Lending?

Some of these areas could include offline payments, retail payments for agriculture sector, supply-chain and B2B payments, payments related to government financial inclusion programmes and cross-border payments.

Also Read: Offline Payments: The Next Big Push For Digital Transactions

“Broadly, we haven’t seen payments solutions developed for loan installment payments, micro-insurance payments and B2B solutions. So an NUE focused on these solutions would be very beneficial for the ecosystem,” said Rajeev Agrawal, founder and CEO, Innoviti Payment Solutions Pvt. If an NUE creates an entirely new solution where a payments rail is combined with a credit rail, it would help lenders and insurers with distribution and collections, thereby reducing their costs. Such a solution would give strong competition to NPCI’s platforms, he said.

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