The government doesn’t want public sector banks to set up NUEs that will rival the country’s premier payments entity, the people said. The proposed joint venture led by SBI has been cited by finance ministry officials on the counts of potential competition and monopoly risk, they said.
“The finance ministry has reviewed the situation and doesn’t want state-owned banks to compete against flagship government of India projects such as RuPay and UPI (Unified Payments Interface), which are run by NPCI,” one of the persons said. “Concerns have been flagged around common ownership between NPCI and the bank-led NUE. This is being seen by finance ministry officials as a major competition risk.”
SBI, HDFC Bank and Bank of Baroda didn’t respond to queries. The banks in question could go ahead with separate NUE partnerships to allay the fears of the government and the regulator.
“Bulk of NPCI’s traffic comes from SBI and if they set up their own payments entity then it will be a slow death for the former,” said another person. “But this doesn’t mean that the consortium should not be allowed to take its plans forward. SBI alone spends much more on IT infrastructure than NPCI and as a country India needs much more competition in the payments space for a flourishing digital market.”
NPCI is owned by a consortium of banks and licensed fintech companies. SBI, HDFC Bank and Bank of Baroda own a total 24.2% stake in NPCI. The three process more than 50% of all digital transactions—comprising those made by their own customers and third-party networks such as UPI.
“Another concern expressed by the finance ministry is also a potential monopoly risk as these are the three largest retail banks in India. The objective of bringing NUE to rival NPCI was to de-risk the ecosystem, but this could prove counter-intuitive,” said the second person cited above.
ET was the first to report that these banks
were planning to float their own NUE as they want more autonomy in processing online transactions.
The bank-led consortium also has a foreign card scheme operator as a partner and a handful of smaller ecosystem partners. The consortium was in advanced stages of presenting its proposal to the Reserve Bank of India (RBI) ahead of the February 26 deadline when the finance ministry flagged its concerns.
The NUE framework was unveiled in August last year, with the central bank also opening the window for applications. Entities receiving approval can set up a payments company for owning and operating a pan-India digital payments network, exercising the same powers as NPCI.
According to a person directly involved in the matter, the central bank is monitoring the situation closely and could extend the deadline for submission of proposals. The finance ministry flagging the plan could have stemmed from complaints made by ecosystem stakeholders, the person said.
“Representations have been made to the finance ministry that the SBI-HDFC Bank-BoB consortium will be a conflict of interest as they hold stake in NPCI. Similar complaints have also been made in the past by (NPCI) against banks for dealing with Visa and MasterCard,” the source said. “Till this logjam is sorted, I think the RBI will be forced to extend the submission deadline.”
Meanwhile, three other consortiums are learnt to be in the final stages of submitting applications. One of them is led by Reliance Jio Infocomm and another is a fintech-led consortium, So Hum Bharat, owned by Infibeam Avenue and Yes Bank.
“Business plans are not moving at the pace they should move. There is a pushback against large corporate entities, so the mood is to extend the deadline rather than awarding it to one large Indian consortium with foreign backing,” a prospective NUE applicant said.
RBI has not yet made clear the specific mandate of the proposed NUEs. The broad scope as expressed by the regulator includes setting up and operating new payment systems comprising ATM networks, point-of-sale (PoS) services, Aadhaar-based payments and remittances.
“The business scenarios that we looked at didn’t make sense–profitability was a big concern. The issue is most of the advisors hired for NUE are ex-NPCI and they haven’t created scalable business models, so we have backed out of the process,” said a senior executive at an entity that had been looking to participate.
NPCI was established by the RBI and the Indian Banks’ Association in 2008. It was modeled on the non-profit payment and settlement entity run by the Swedish central bank and owned and operated by banks. In the past decade, it has developed the country’s key retail 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 (DBT) architecture that supports the government’s Jan Dhan Yojana. In FY20, NPCI had an income of Rs 1,100 crore and a net surplus after tax of Rs 387 crore.