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New Umbrella Entity Licence

New Umbrella Entity Licence

Why in news?

  • The Reserve Bank India (RBI) had released the framework for authorisation of pan-India umbrella entity for retail payments, which will rival National Payments Council of India (NPCI), on August 18, 2020, and invited applications from interested entities.
  • The process for complying with the framework prescriptions, a timeline of six months was provided (February 26, 2021).
  • RBI received requests from various stakeholders for extending the timeline, keeping in view the COVID-19 related disruptions and inconveniences.
  • The apex bank has been accordingly decided to extend the timeline for submission of application up to March 31, 2021.

What Is Retail Payment System?

  • This system involves economic transactions between 2 consumers, or a consumer and a business, or between 2 businesses.
  • There is no definitive division between retail and wholesale payments. A wholesale payment can be categorized under retail payment.
  • Retail payment systems usually have higher transaction volumes and lower average values than wholesale payment systems.

 

About National Payment Corporation Of India (NPCI)

  • NPCI is a ‘not-for-profit’ entity registered under section 8 of Companies Act.
  • The National Payments Corporation of India (NPCI) is an initiative taken by the Reserve Bank of India (RBI) and Indian Bank’s Association (IBA) to operate the retail payments and settlement systems in India.
  • This organisation was founded in the year 2008 under the Payment and Settlement Systems Act, 2007.
  • It is owned by a consortium of leading public and private sector banks.
  • It is the only entity to maintain and operate the digital payment channels in the country.
  • Under the PSS Act, 2007 as per the authorisation of RBU,  NPCI can operate the following payment systems:
    • National Financial Switch (NFS)
    • Immediate Payment System (IMPS)
    • Affiliation of RuPay Cards (debit cards/ prepaid cards) issued by banks and co-branded credit cards issued by non-banking financial companies (NBFCs) or any other entity approved by the RBI.
    • National Automatic Clearing House (ACH)
    • Aadhaar Enabled Payments System (AEPS)
    • Operation of Cheque Truncation System
  • Some of the current products that were launched under the National Payments Corporation of India are RuPay, national common mobility card, BHIM, UPI and bharat bill payment system.
  • NPCI shareholders includes 12 Public sector banks, 17 private banks, 3 foreign banks, 10 co-op banks and 7 regional rural banks.

What is the New Umbrella Entity Licence?

  • The proposed entity will set up, manage and operate new payment systems especially in the retail space.
  • It would comprise of but not limited to ATMs, white label PoS, Aadhaar-based payments and remittance services, develop payment methods, standards and technologies, monitor related issues and internationally.
  • It would take care of developmental objectives like enhancement of awareness about the payment systems.
  • The RBI retains the right to approve the appointment of directors as also to nominate a member on the board of the NUE.
  • The NUE should conform to the norms of corporate governance along with ‘fit and proper’ criteria for persons to be appointed on its board.

Who Can Apply For NUE?  | New Umbrella Entity Licence 

  • Any promoter or group who has three years of experience in the payment ecosystem, as an operator, service provider or technology service provider can apply for NUE.
  • Any entity holding more than 25% of the paid-up capital of the NUE shall be deemed to be a promoter.
  • If a promoter is a foreign investor, he should comply with the FDI policy and guidelines of GOI and should also follow DIPP and FEMA policies.
  • The applicant needs to follow corporate governance norms and should take RBI’s approval for the appointments of board members.

Private members planning to apply for NUE

  • Reliance Industries, along with Facebook and Google — which have invested in Jio Platforms — are planning to apply as a consortium.
  • Tata Group has joined hands with HDFC Bank, Kotak Mahindra Bank, MasterCard and Bharti Airtel. Among global players, e-commerce firm Amazon has tied up with Visa, ICICI Bank, Axis Bank and fin-tech startups BillDesk and Pine Labs for the NUE licence.
  • Softbank portfolio companies Paytm and Ola have also reportedly joined hands to apply for the NUE.

Functions

  • To operate clearing and settlement systems
  • To identify and manage relevant risks such as settlement, credit, liquidity and operational and preserve the integrity of the system
  • To monitor retail payment system developments and related issues in the country and internationally to avoid shocks, frauds and contagions that may adversely affect the system and the economy in general

Some Facts

  • No single promoter is allowed to have more than 40% investment in the capital of NUE as per RBI guidelines.
  • The promoter shareholding can be diluted to a minimum of 25% after 5 years of the commencement of business of the umbrella entity.
  • The NUE would also have to maintain a minimum net-worth of Rs. 300 crore at all times.
  • Any retail payments solutions created by the new umbrella entity or entities should interact and be interoperable with existing systems operated by the national payments corporation of india, said RBI.
  • The new entity will compete on developing new retail payments technology and not necessarily replace payments platforms operated by the NPCI.

What Is The Need For NUEs?

  • Currently, the umbrella entity for providing retail payments system is NPCI, which is a non-profit entity, owned by banks.
  • NPCI operates settlement systems such as UPI, AEPS, RuPay, Fastag, etc.
  • Players in the payments space have indicated the various pitfalls of NPCI being the only entity managing all of retail payments systems in India.
  • RBI’s plan to allow other organisations to set up umbrella entities for payments systems aims to expand the competitive landscape in this area.
  • For the players planning to establish these NUEs, the aim is to get an even bigger share in the digital payments sector.

 

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