Thoughts on RBI Draft Paper on NUE for Retail Payment Systems

On 10th Feb, 2020 Reserve Bank of India released a paper on ‘draft framework for authorisation of a pan-India New Umbrella Entity (NUE) for Retail Payment Systems’ for public comments. RBI has invited comments from all stakeholders by February 25th, 2020.

In 2005, when I had started my career from HDFC Bank, there were multiple ATM networks active in the country. Apart from Visa and MasterCard, there was one ATM network run by Euronet, where (I think) 16 banks were participating, and there was another operated by FSS (The entity was walled FSS Net), where (I don’t remember the number of banks) were participating. Apart from these some banks were having bilateral arrangements with other banks for sharing of ATM infrastructure. Around the same time another ATM network by the name of NFS was getting active, which was run by IDRBT. Most of the banks slowly started joining NFS network and with time it became the largest domestic ATM network in India. It was about this time, two things happened; control of NFS network was transferred from IDRBT to a newly formed entity called NPCI and RBI had put a stop to all the bilateral ATM sharing arrangements. From this point onward NPCI became the source of almost all the innovations in retail payments starting with RuPay, IMPS, AEPS, APBS to more recent UPI, BHIM, BBPS, eNACH, NCMC and NETC etc. I had been very fortunate to have balcony seat to many of these stories by virtue of being a part of HDFC Bank and then Kotak Bank and Jio Payments Bank.

The journey of NPCI from NFS ATM network to today controlling almost 60% of retail electronic payment transactions by volume (please note that RuPay Credit Card is a very recent phenomenon and numbers there are still dominated by Visa and MasterCard followed by American Express and Diners) has been really exciting and in many ways the best thing to happen to Indian digital payments ecosystem. Having said that the amount of influence NPCI today commands is really dangerous and while NPCI claims to be very open to suggestion and ideas, I have personally seen on many occasions that best idea didn’t win due to various factors.

With introduction of NUE there is a possibility of many more innovative payment solutions to be envisioned and implemented, which are more suitable for Indian audience. This will also make NPCI work even harder to continue doing the good work they have been doing and not become complacent. Few key areas I can clearly see new NUEs to focus on would be building specialized and low cost solutions for business correspondent network, which is the back bone of entire Financial Inclusion story in India and still does not command the attention that it deserves from various larger players in the ecosystem. Another very important area that has been demanding attention and has clearly been mentioned in RBIs paper is remittances. There are so many migrant workers, who earn in Cash and need to send money to their families in their native places. Cash is still the biggest mode of transaction today in India and there is clearly scope to do more.

I will be looking at organizations like Euronet, FSS, AGS, TATA PSL, NSDL on one hand and PineLabs, Innoviti, mSwipe etc to be eager to go for this. One organization that has been at the center of many innovations happening in India iSPIRT to play a key role in all this. My only advice to anyone considering becoming NUE would be to let go of the traditional card protocols (think beyond iso 8583) and go back to drawing board before designing their solutions. In the end payment is all about debiting one account and crediting another, sounds like simple stuff. The key to any solution would be how simple the final offering remains.

This could also be a move in the direction of having specialized entities enabling interoperability for different modes of payments or use cases. For example Billdesk can attempt to become the go to entity for all things bill-payment. Another NUE can appear specializing the interoperability of mobile wallets. As I have mentioned above, there is a clear scope of specialized offering the business correspondent and self help group area, which has been the key to Financial inclusion in India so far. Hell, why cannot even bank branches be interoperable? Can a Kotak customer walk into and SBI branch and get his passbook updated, earning additional revenue for SBI in the process? The possibilities are endless, if we decide to think outside the box.

Few questions, will NUE as private entities be allowed to user Aadhaar authentication? What will be the exact role of NPCI in all this? Will NUEs be allowed to perform other business activities, for example can NSDL continue to offer e-Sign services as part of same business or have to set-up a separate entity, if they decide to go for it? More clarity should emerge after RBI releases final framework after reviewing everyone’s feedback post 25th Feb, 2020.

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