RBI puts on hold NUE licensing

RBI is said to have put on hold licensing of the New Umbrella Entity (NUE) network, a fintech institution planned as a rival to the National Payments Corporation of India (NPCI). Six Groupings, which included Facebook, Google, Amazon, Flipkart, and others, had applied for NUE licenses.

RBI will not grant permission to any of the six consortiums to commence business as all of them have fallen short of the RBI's expectations.

It looks like none of the applicants have proposed anything novel or a great technology breakthrough that would have made RBI look over it, almost all of the plans were similar to that of the NPCI, which did not enthuse the RBI.

NPCI, established by the RBI and banks, runs the Unified Payments Interface (UPI) and other payment systems.

NUEs were supposed to set up and operate a new retail digital payment system and manage clearing and settlement systems that could be an alternative to the bank-promoted NPCI.

The applicants included a consortium of Facebook, Google, and SoHum Bharat, along with Jio Platforms. The Tata Group expressed interest in an association with Kotak Mahindra Bank, HDFC Bank, Airtel Digital, Flipkart, Mastercard, and PayU. E-commerce giant Amazon along with ICICI Bank, Axis Bank, Visa, Pine Labs, and BillDesk had formed another grouping while Paytm had set up a partnership with Ola Financial, Policybazaar, and IndusInd Bank.

 

Guidelines Issued in 2020

All the applications were given in March-April 2021 but there has been no communication from the RBI after that, Some banks did check with the regulator a couple of times but were told to wait and we haven't heard about this for a long time now.

An NUE license was expected to help the participating entity gain greater autonomy in processing digital payments in India. The license would help establish a firm presence in the financial services ecosystem through value-added lending and insurance services.

The RBI had in 2020 issued guidelines for corporates to create for-profit NUEs to foster competition and "de-risk" India's burgeoning digital payments ecosystem, where much of the settlement burden has fallen on the nonprofit NPCI over recent years.

As per the rules, no single promoter could have over 40% stake, which had to be lowered to less than 25% in five years of operation. The entity also needs a paid-up capital of Rs 500 crore to get RBI approval.

The RBI proposal had evoked a lot of interest in the market and people had submitted plans. It was a good alternative to the NPCI and needed in a large market like India, but given the success and popularity of the NPCI is a difficult proposition to push through

NPCI was established by the RBI and the Indian Banks' Association in 2008 modeled on the non-profit payments and settlement entity run by the Swedish central bank that's owned and operated by banks.

It has developed the country's key payment railroads, including UPI, the Immediate Payments System (IMPS), RuPay, and the National Financial Switch (NFS). It's also credited with powering the Direct Benefit Transfer architecture that supports the government's Jan Dhan Yojana.