The State Bank of India (SBI), Bank of Baroda (BoB) and HDFC Bank are teaming up to form a New Umbrella Entity for retail payments, the Economic Times reported. The NUE will be a profit-making entity and competitor to the National Payments Corporation of India (NPCI) setting up and operating new payment systems for ATM networks, point-of-sale device, Aadhaar-based payments and remittances.

So far several banks and the Tata Group have intimated their interest to setup an NUE in addition to a consortium of payment companies or fintechs. Further, Reliance Jio, the Bombay Stock Exchange, the National Stock Exchange, Paytm and Infibeam are also eyeing the opportunity to create their own retail payments umbrella organisation under the RBI’s framework, the report said.

SBI, BoB and HDFC Bank will make a joint application to the RBI and the structure of the consortium, which could include several other banks, should take shape in a month’s time. SBI will be the lead promoter of the bank-led NUE. It remains to be seen whether the three banks, and its other banking partners, will divest their existing stake in the NPCI to avoid conflicts. While SBI and HDFC Bank each have a 7.47% stake in the NPCI, BoB has a 9.592% stake in the entity as this includes the equity stake held by Dena Bank and Vijaya Bank which were merged into BoB in April last year.

The idea for the NUE stems from a January 2019 RBI policy paper, which said that the RBI would like to encourage more players to participate in and promote pan-India payment platforms, with a view to minimize concentration risk in the retail payments system.

Payment Systems in India have grown in a manner which is characterized by a few operators while there is a wide array of payment systems. This has given rise to certain questions which range largely around concerns of concentration, need for competition and the resultant impact on economic efficiency and financial stability.

Policy Paper on Authorisation of New Retail Payment Systems, January 2019

The NPCI, a not-for-profit entity, was set up in December 2008 as an umbrella organisation for retail payment systems, with authorisation of the RBI. As of March 2020, the capital was provided by 10 of the largest banks in the country that have a shareholding of 76.8%. The remaining equity stake is owned by several smaller banks. In the last 12 years, the organisation has grown to support over ₹12,000 crore of digital payment transactions on a monthly basis. Between April to September this year, the NPCI’s 10 platforms processed over 1,525 crore transactions worth nearly ₹66.86 lakh crore.

The Reserve Bank of India (RBI) released its framework for a pan-India NUE in August this year, the application window is open till February 2021. An external central bank committee will approve the applications over six months time. It will take the NUE, or multiple NUEs, a few years to develop and launch their retail payments platforms

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