The Reserve Bank of India has opened the application window for companies wishing to set up an umbrella entity for owning and operating a pan-India payments body with powers similar to the National Payments Corporation of India (NPCI).
The proposed entity, unlike NPCI, can be a for-profit entity as well with diversified shareholding with no single promoter allowed to hold more than 40% investment at the time of the application with stipulation reduce it to 25% within five years of operation, as per the final framework released by the central bank on Tuesday.
The proposed entity would be regulated by RBI and authorised under Payment and Settlement Systems Act (PSSA) 2007.
Furthermore, the umbrella entity needs to have paid up capital worth Rs 500 crore, of which 10% or Rs 50 crore has to be contributed at the time of application, as per the framework. A minimum net worth of Rs 300 crore also has to be maintained at all times.
The central bank had earlier placed draft framework for a “New Umbrella Entity” in public domain for comments earlier this year in a bid to “de-risk” India’s burgeoning digital payments ecosystem and introduce competition for NPCI which controls over 60% of all retail payments in the country.
Interestingly, the central bank has removed the word ‘New’ from the final framework in the nomenclature of the proposed payment body; it is now being addressed just as Umbrella Entity.
NPCI, a ‘not-for-profit’ entity registered under section 8 of Companies Act, is owned by a consortium of leading public and private sector banks. It is directly responsible for functioning of highly important digital payment channels such as Unified Payment Interface, NACH, National Financial Switch (NFS) and IMPS.
ET had reported in April that several high-profile corporates in India Inc including Reliance, Paytm, National Stock Exchange and Bombay Stock Exchange had expressed interest in participating in the project once RBI opened the window for application. Companies have been now given time till February of 2021 to apply.
Several high-profile foreign fintech companies and payment networks are also known to be interested in submitting applications and setting up the entity, as per people in the know. Some of these companies have even set up internal advisory committees to strengthen applications.
“Board for Regulation and Supervision of Payment and Settlement Systems (BPSS), will be the final authority on issuing authorization for setting up umbrella entity / entities. Reserve Bank will endeavor to complete the process within a period of six months,” RBI said.
The scope of the approved entity includes setting up and operating new payment systems comprising ATM networks, Point of Sale services, Aadhar based payments, remittances among others.
The approved entity can also participate in RBIs payment settlement and clearing systems. Further, it can also “interact and be interoperable” with systems operated by NPCI, as per the new framework.
“Over a decade, the National Payments Corporation of India (NPCI), has performed as the sole umbrella organization for retail payment systems in India,” the central bank said in the December edition of its biannual Financial Stability Report.
“Availability of NUE offering products which will lead to the redundancy of existing systems can, besides addressing concentration risk, also encourage competition and innovation, thus contributing to financial stability,” the central bank had said.
The banking regulator has said that it would be open to Foreign Direct Investment in the proposed entity, however, such applications would incur additional layers of scrutiny including approvals from FEMA.
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