The Indian digital payment arena seems set for a major splash. As per a media report, Amazon, ICICI Bank and Axis Bank are coming together to float an alternative to NPCI (National Payments Corporation of India), which runs the Unified Payments Interface (UPI), the most popular mobile payments platform in India.
The three entities, along with Pine Labs and BillDesk, are reportedly set to get up a new umbrella entity (NUE) — literally a rival to the NPCI — to handle digital transactions in India.
Amazon, ICICI and Axis Banks are likely to make a presentation to the RBI (Reserve Bank of India) in a day or two before the deadline expires for submitting bids to float NUEs
If the bid gets the nod, it would mean that the dominance of UPI, which saw over 2 billion transactions in January 2021, will soon be over.
Unlike NPCI, NUEs can be for-profit
According to a news report in Economic Times, which quoted sources privy to the development, “Our attempt is to create a world-class payments network which can reduce settlement time for small businesses and merchants. The discussions largely gained momentum over the last two months. All the requisite agreements and paperwork between players are in place.”
It may be recalled that NPCI was established by the RBI in 2008, as a not for profit organisation, for running retail payments and settlement systems in India. NPCI, which has the backing of 56 banks, manages UPI and RuPay, and also provides electronic tolls payments via FASTag.
However, RBI announced guidelines to create the NUEs to develop and push technologies for new retail payments systems. RBI said these new ventures would likely complement the existing platforms run by NPCI rather than compete with or duplicate them.
The crucial difference is NUEs can be for-profit. This, analysts say, may put NPCI on the backfoot and hamper its viability in the longer run.
NPCI has also capped the proportion of transactions that a single company can process to 30%. The reason being stated is to “address the risks and protect the UPI ecosystem as it further scales up.”
Govt, RBI not on the same page
The nub of the matter is that while the RBI has been scouting for alternatives to NPCI to avoid reliance on UPI alone, the Indian government is not too happy with the apex bank’s proposals.
The government feels that payment system should be a core function (like issuing voters ID or Aadhaar) handled by the government and the private sector should be kept at arm’s length.
Further, some stakeholders have expressed concerns over indirect foreign ownership of proposed payments umbrella firms.
It is pertinent to point out here that the government has more or less nixed State Bank of India’s (SBI) plans to set up a joint venture with HDFC Bank and Bank of Baroda (BoB) to apply for NUE licence.
The government did not want State-owned banks to compete with the government’s flagship projects.
Aside, it is also said Google and Facebook are said to be in talks Reliance Jio to explore the possibility of setting up an NPCI-like body. Tatas are also keen to enter the fray.
So with the government so reluctant to cede ground to private players, it remains to be seen how it tallies with RBI’s plan to open the floodgates in the matter.