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Last year, the Reserve Bank of India (RBI) had invited tech companies, startups, and other businesses to form New Umbrella Entities (NUEs). However, RBI has now decided to put the plan on hold, citing data security concerns. This news was released by two people directly aware of the development, according to Livemint.
NUE: A Brief Background
In February 2020, RBI had invited private companies to apply for NUE licenses. These NUEs would directly compete with the National Payments Corporations of India (NPCI), the entity responsible for creating the digital payments infrastructure in India, and end its dominance in the country’s retail payment space. This move would have also given a massive boost to the country’s fintech ecosystem. RBI’s intention was also to reduce the risks of payment sector concentration and offer consumers more options.
NPCI already processes a significant percentage of retail payments. For example, it handles many retail platforms, including the popular unified payments interface (UPI), Aadhaar-enabled Payment System, Immediate Payment Service (IMPS), RuPay, and Bharat Bill Pay.
The NUEs would be responsible for managing payments in the retail space. They could also offer other retail payment services like setting up ATMs, Aadhaar-based payments, white-label POS terminals, remittance services, and develop novel payment methods.
At least six consortiums, including those led by Google, Facebook, Amazon, and Tata group, had applied for the NUE licenses in partnership with firms like ICICI Bank Ltd and Reliance Industries Ltd. However, public sector lenders such as Union Bank and State Bank of India were prevented by the finance ministry from applying for NUE licenses as they were already shareholders in NPCI.
Bank unions and state-run lenders had opposed this move by RBI. They had raised concerns about allowing foreign institutions to set up payment networks in the country. The UNI Global Union and All India State Bank of India (SBI) Staff Federation had urged RBI to scrap the plans to provide NUE licenses and instead focus on strengthening NPCI.
Data Security a Key Concern
According to one of the two people who revealed the news, RBI felt that the issue of data security involving foreign businesses was a key concern. Hence, it decided to shelve the plans of issuing new licenses for now.
RBI had earlier ordered Mastercard to stop onboarding customers in India as the latter was not complying with localization regulations. This same move may have further prompted RBI to reconsider the NUE licensing process. Moreover, MobiKwik and Bigbasket had recently experienced data breaches. These incidents, too, may have prompted RBI to reconsider allowing private entities to handle consumer payment transaction data.
What will be RBI’s next move regarding NUEs is yet to be seen.