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The Unified Payments Interface (UPI) revolutionized the digital payment system. Since then, UPI and RuPay, both owned by the NPCI, have monopolized digital payments. However, the digital payment landscape is again up for a few changes as a result of RBI’s new guidelines.
Regular payment companies, as well as conglomerates, such as Reliance, Tata, Amazon, Google, and Paytm, aim to establish a new umbrella entity (NUE) for payment systems. This is expected to revolutionize retail payments again. To understand what this new umbrella entity is, we should take a detailed look at the draft outline. The framework describes the eligibility and governance norms of the future NUEs.
The Reserve Bank of India (RBI) proposed to build ‘new umbrella entities’ to improve and steer technologies for retail payments. This brings in several such organizations over time with their particular zones of specialization.
What Is NUE?
The RBI developed an outline for the Pan-India umbrella entity for retail payments in August 2020. In this framework, the apex bank stated that an entity must have an Rs. 500 crore minimum paid-up capital (PUC).
As per RBI, a corporation can get a license to set up an NUE either as a non-profit organization (NPO) or for-profit company. The NUE will offer all types of payments and their interoperability to a payer. Further, the company will have to set up, manage, and operate the new payment methods in the retail space. This need not be restricted to ATMs, Aadhaar established payments, White Label PoS, and remittance services (AEPS). It can look for novel payment methods, technologies, and standards. Furthermore, the company can monitor payment challenges in the country and overseas while taking care of enhancement objectives like improving awareness of the payment methods.
Other than that, the firm should work with NBFCs and banks to recognize and manage related threats. This comprises payment, liquidity, and credit. Also, a single promoter or promoter group cannot have more than 40% invest in NUE.
The primary objective of the NUE is to reinforce the retail payments landscape in the country. That means, besides improving the user experience, it also aims to improve interoperability.
Who Can Apply?
As mentioned above, NUEs should have an Rs. 500 crore minimum PUC. The huge PUC aims to address the capital requirement for investing in tech infrastructure, business operations, and managing risks. Moreover, the company should also have a minimum net-worth of Rs. 300 crore at any given time. This means that companies with huge funds can apply for an NUE. This includes corporations like Reliance Group, Tata Group, and well-known companies like PayTm may also apply for the license.
Besides these entities, several fintech players backed by large entities or investors are likely to apply for the license. Although RBI has a condition to permit only Indian companies to apply, international corporations with an Indian subsidiary may also apply. This includes companies like Facebook, Google, and Amazon.
How To Apply?
RBI states that businesses who plan to apply for NUE licenses should apply to RBI via post. The company has to send a complete business plan covering the payment systems they need to set-up and its operations and other documents. The business should already have previous experience in the payments ecosystem. The company should further provide its market analysis or study and the benefits their systems and structures provide. They need to provide the duration for setting up the payment methods and the scale of operations, among other details.
The Difference Between NUE and NPCI
Both NUE and National Payments Corporation of India (NPCI) are payment entities. The main difference between the two entities is that NPCI is a state-owned non-profit corporation while NUEs can be for-profit corporations. The businesses who win on NUE are bound to win on NPCI. However, it is a win-win as NUE will include UPI irrespective of the tech innovations they do. The only catch is that if NUE becomes a for-profit organization, RBI can change NPCI too. That means customers who use UPI to send even Re 1 may be charged a fee by their banks.
Revenue Model for NUE
At present, the revenue model of these NUEs is not clear as they can function as a for=profit entity or NPO. RBI has not set any constraint on its business model. They charge transaction fees to function in new territories. However, we do not have to think much about the revenue model of these entities as RBI will provide the license of NUE to only one or two corporations. It could then take up to two years before the entity starts operating.