The Reserve Bank of India (RBI) is said to have put on hold licensing of the New Umbrella Entity (NUE) network, a fintech institution planned as a rival to National Payments Corporation of India (NPCI).
Why in news?
- Six groupings, which included Facebook, Google, Amazon, Flipkart and others, had applied for NUE licences.
What is New Umbrella Entity (NUE)?
- NUE is an entity (under the Companies Act 2013) that will manage and operate the new payment system in the retail sector such as ATMs, POS, UPI etc.
- NUEs will be set up for profit entities that will manage payments in the retail space.
- These could offer a host of retail payment services, including setting up of ATMs, offering white-label, point of sale terminals, Aadhaar-based payments, remittance services, and develop newer payment methods.
- They will also manage clearing and settlement systems that could be an alternative to the bank-promoted NPCI.
- They will be allowed to charge fees for transactions (unlike the existing NPCI).
- All NUEs will have to be interoperable with the National Payments Corporation of India (NPCI).
Why need NUEs?
- The NPCI is at the epicentre of the digital payments in the country.
- RBI has introduced NUEs to end the so-called monopoly of NPCI.
- The central bank also noted that during the pandemic, with people spending more time at home the usage of e-commerce has increased, and there’s been a significant rise in the incidence of internet fraud, cyber-crimes.
If NPCI is doing its job well, then why NUE?
- 48% of all electronic retail payments in the country pass through the NPCI infrastructure.
- RBI’s concern stems from having the operations of so much of the country’s payment system concentrated in one entity.
How will NUE aid Consumers?
- With the introduction of NUEs, options for payment will increase for users.
- This will result in more competition and eventually help boost transaction volumes for both platforms as e-commerce expands and reaches deeper into India’s unbanked hinterland.
- In the World Bank’s most recent report on financial inclusion in 2017, some 190 million Indians did not have a bank account and more than half did not make or receive digital payments.
- Customers who face frequent sever transaction due to server overload currently have few options.
- In the new regime, they’ll be able to try the other platform.
What about Data Safety?
- Compliance as far as data safety and privacy is concerned holds good for all and sundry in the payments and banking space.
- Every entity involved in payments and settlement have to follow the same set of rules.
- RBI already have a new set of guidelines on “Regulation of Payment Aggregators and Payment Gateways” .
- It ensures that neither the authorised Payment Aggregators (PAs) nor the merchants on-boarded by them can store customer card credentials within their database or server to avoid data breaches and potential abuse.
Will NUEs replace NPCI?
- NUEs will co-exist with NPCI to strengthen the payment infrastructure network.
- A robust and resilient infrastructure is needed to ensure the government’s ambitious target of one billion digital transactions per day is achieved.
- NUEs will not replace but complement NPCI in taking India’s digital payment success story to new heights.
- By establishing a neutral and independent standards-setting body, we can make sure that the system as a whole in our country evolves in the best traditions of digital infrastructure adopted anywhere in the world.
