Online payments in India have increased manifold in the pandemic owing to the growth of online shopping and preventive measures to maintain minimum contact. As per the Reserve Bank of India, the payment through digital modes is expected to balloon up to 1.5 billion transactions, for a volume of Rs 15 trillion a day by 2025. RBI’s recent announcement of floating New Umbrella Entity has piqued interest among corporate houses like Reliance Industries and Tata group, e-commerce and tech firms like Facebook, Amazon, and Alphabet Inc, payment business like Paytm, Visa, and MasterCard, and banks such as ICICI Bank, Kotak Mahindra Bank, HDFC Bank, and Axis Bank. They are forming consortiums to set up a New Umbrella Entity for which they have applied in April 2021. The interest regarding NUE in conglomerates is not surprising as 2020 has witnessed many acquisitions where TATA, Reliance and Amazon have aggressively forayed into the retail and e-commerce vertical by acquiring several e-commerce start-ups and efforts to digitise several Kirana stores.
What is a New Umbrella Entity?
New Umbrella Entity is an idea floated by the RBI which will be an alternate mechanism to the existing National Payments Corporation of India (NPCI) in the retail payment space. NUE are entities that can be set up as either for-profit companies or not-for-profit companies. The companies to set up NUE are subjected to undertake a host of activities in the retail payment space. The activities to be undertaken by the entities would include setting up ATMs, offering white-label, point of sale terminals, Aadhaar-based payments, and remittance services, create standards and technologies, address monitor related issues in the country, and develop newer payment methods. They can also operate clearing and settlement systems and manage relevant risks such as settlement, credit, liquidity, monitor new retail payment developments and issues nationally and internationally to evade shocks, frauds, and contagions. The NUE shall be a company authorised by the Reserve Bank of India (RBI) under Section 4 of the PSS Act, 2007. It shall be governed by the provisions of the PSS Act and other relevant statutes and directives, prudential regulations, and other guidelines/instructions.
New Umbrella Entity is an idea floated by the RBI which will be an alternate mechanism to the existing National Payments Corporation of India (NPCI) in the retail payment space.
Why are companies eyeing NUE ( New Umbrella Entity)?
Various conglomerates, banks, e-commerce majors, and payment apps are jostling to own a share in the retail payment pie since NUE will allow the companies to charge fees for digital transactions, unlike NPCI which is a non-profit umbrella organisation. The companies through new entities can earn interest that customers maintain in their online shopping accounts.
Why has RBI set up NUE?
Currently, NPCI has a gamut of retail payment systems such as Unified Payments Interface or UPI, the IMPS (Immediate Payment Service), Bharat Bill Pay, Aadhaar-enabled Payment System, and RuPay. The enormous volume of transactions has made the platform highly susceptible to internet frauds, cybercrimes, and unsuccessful transactions. With digital transactions ballooning it is risky to rely on a single system, RBI wants to decrease the burden on NPCI and wants to offer consumers more options. Therefore, RBI is inviting private companies to bid for a license to set up a new platform. According to retail payment statistics from NPCI, the platform in FY 2019-20 recorded a transaction volume of 31 million valuing 16 billion and for FY 2021-22 it is estimated to reach a volume of 96 million valuing 32 billion.
Will NUE be a game-changer in the fintech space?
The introduction of NUEs will ensure a healthy competition with NPCI. Private companies forming umbrella entities will create digital payment mechanisms resembling UPI, IMPS, and other payment modes which will be adopted by banks and fintech companies helping NUE gather a larger foothold in the retail payment sector.
What is in it for Businesses?
Reliance has stepped into the retail sector where it plans to digitise the small local or Kirana stores by onboarding them to its Jio Mart platform. Amazon is also collaborating with Kirana stores to strengthen its online grocery segment. With them setting up NUE it will help the mom-and-pop stores in India to adopt new Point of Sale terminals and be a part of the organised retail. Banks too here will be able to offer better seamless transaction services to their customers with the advent of new payment mechanisms.