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India’s banking regulator to have another entity besides NPCI for retail payments

Taking cognizance of the fact that cash still comprises a large and significant part of the economy in India, its banking regulator has proposed setting up a new umbrella entity (NUE) focused on retail payments. The Reserve Bank of India (RBI) has proposed a draft framework and has not issued any final guidelines yet but the new entity would be incorporated under the Companies Act as a “for-profit” company.

At present, India has an umbrella organization for payments called National Payments Corporation of India (NPCI) that focuses on innovations around digital payments. The biggest innovation of NPCI has been the creation of a real-time instant payments platform is popularly known as UPI (unified payments interface). The new entity is likely to focus both on offline and digital payments and can be seen as a competition for NPCI. It would manage and operate new payment systems in the retail space and not be limited to ATMs, white-label PoS, Aadhaar-based payments, and remittance services.

While NPCI is already working on innovations around new digital and retail payments, it would be interesting to see what novelty factors does the new entity brings on to the table, experts tracking the industry feel.

As per the RBI draft proposal, the new entity would have the mandate to develop new payment methods, standards, and technologies and also operate clearing and settlement systems. It would also monitor the retail payments system developments and related issues in the country and internationally to avoid shocks, frauds, and contagions that may adversely affect the system. Another important mandate is to spread education and awareness of digital payments, something which NPCI has been doing since the last few years.

On the need for a separate entity for payments, Navin Surya, Chairman Emeritus of  Payment Council of India, said, “The retail payment market is very big and hence there is an option available for more players to support and participate. Some large players feel they can also innovate and provide more solutions. It will be interesting to see who all want to apply.”

With a minimum paid-up capital of INR 5 billion, and no single promoter/promoter group holding more than 40% investment in the capital, the NUE would require promoters to contribute not less than INR 500 million at the time of application.  After 5 years of commencement of the NUE, the promoter/promoter group shareholding shall be diluted to a minimum of 25% and a minimum net worth of  INR 3 billion is required to be maintained all the time.

The RBI used to manage and develop all kind of payment systems in the country, prior to setting up of NPCI.

“There could be two important reasons for setting up a new entity. First to encourage innovation, in non-card modes and second to cut through NPCI’s monopoly,” said Gaurav Tiwari, a FinTech expert, and former banker. According to Tiwari, big payment players such as NSDL, NSE, Euronet, FSS, and AGS Transact would be the first few to apply for NUE.

Tiwari also felt that with zero-MDR and almost no ATM charges in the payment industry, it would be difficult for the new entity to come up with a sustainable revenue model. The NUE is said to be a “for-profit” entity.

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