Tag: NUE

SBI union, others urge RBI to scrap digital payments plan

Banking & Finance

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A union representing India’s largest state-run bank and a global alliance have asked the central bank to bar large companies from setting up payment networks, saying in a letter seen by Reuters on Tuesday that privatisation could compromise data safety.

In a bid to reduce concentration risks in the payments sector, India’s central bank (RBI) last year invited companies to forge so-called New Umbrella Entities (NUEs) to create a payments network that would rival the country’s flagship processor, the National Payments Council of India (NPCI).

The NUE will be allowed to operate new payment systems including digital and ATM transactions. Amazon, Google, Facebook and others have applied for such licences in partnership with Indian companies such as Reliance and ICICI Bank.

Also read: Retail payments: Half-a-dozen consortiums set to apply for NUE licence

Involvement of big multi-national companies raises fears of abuse of user data and India’s digital payment networks should continue to operate on a non-profit basis, the All India State Bank of India (SBI) Staff Federation and the UNI Global Union, a vocal critic of tech giants, wrote in the letter.

Opposes NUE

The letter urged the central bank to scrap the “whole process of NUE licensing” and focus on strengthening the domestic payments group, NPCI, which operates as a non-profit.

The RBI did not immediately respond to a request for comment on the letter, which has previously not been reported.

While state-backed NPCI forms the backbone of the country’s digital payments system, India is an increasingly attractive digital payments market for everyone from Amazon to Google. An Assocham-PWC India study in 2019 said digital payments in India could rise to $135 billion in 2023 from $65 billion in 2019.

In the letter, groups including the SBI union, which represents 100,000 of its nearly 250,000 employees, and UNI Global Union, that represents about 20 million workers globally,specifically raised concerns about the NUE application by a consortium led by Amazon. It highlighted the U.S. company was facing several investigations into its business practices in India and abroad.

Amazon did not immediately respond to a request for comment.

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IBA may seek clarity on whether banks can be part of both NPCI, NUE

Banking & Finance

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The Indian Banks’ Association (IBA) may seek regulatory clarity on whether banks already holding stake in the National Payments Corporation of India (NPCI) can be part of a consortia for setting up a New Umbrella Entity (NUE) for retail payment systems.

Though NPCI, India’s only umbrella organisation for operating retail payments and settlement systems, is a ‘not for profit’ company under Section 8 of Companies Act 2013 and NUE will in all probability, be a ‘for-profit’ company, banks want to be sure that the regulator has no objection to them holding stake in two organisations in the same line of business.

Also read: Umbrella entity for retail payments: Race for licence gathers momentum

One school of thought is against ‘for profit’ entities getting into the umbrella retail payment and settlement space due to concerns that the consumer may end up paying more than what he is currently paying for availing digital banking services.

However, another school of thought is of the view that digital banking services could improve further just like it happened after private players entered the telecom sector.

NPCI has 10 banks as shareholders with more than 5 per cent stake. Bank of Baroda is the single largest shareholder with 9.592 per cent stake (this includes the shareholding of erstwhile Dena Bank and Vijaya Bank).

State Bank of India, Union Bank of India, Bank of India, Punjab National Bank, Canara Bank, ICICI Bank, HDFC Bank, HSBC, and Citibank have 7.47 per cent stake each in NPCI.

These 10 banks collectively held 76.822 per cent stake in NPCI as at March-end 2020.

Proposals in the works

Significantly, several of these banks are working out proposals and plan to apply to the RBI for an NUE license.

State Bank of India is a key player that is planning to apply for a license. Sources said the idea is to take forward its mobile banking YONO app to the next level of payments. This could possibly be in a consortium with Bank of Baroda.

Meanwhile, HDFC Bank and Kotak Mahindra Bank are set to work in a consortium with Tata Sons and Mastercard to apply for a NUE license. ICICI Bank and Axis Bank are also working with Amazon and readying plans.

Also read: New umbrella entity for retail payments: RBI extends timeline to make application up to March 31

Another consortium led by Jio Platforms, a majority-owned subsidiary of Reliance Industries, is also in the race to set up a NUE.

According to industry watchers, at least half a dozen consortia are expected to apply and about three licenses may be given out.

“But applications are still in the process of being finalised. It is unlikely that any license will be issued until the end of the year or early 2022,” noted a person following the developments.

Many players believe that setting up more such entities will help further leverage digital payments and increase their penetration and it would not be fair to compare them with NPCI, which has spearheaded the payments transformation.

The deadline for filing applications with the RBI is March 31.

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