The Reserve Bank of India (RBI) is said to have put on hold licensing of the New Umbrella Entity (NUE) network, a fintech institution planned as a rival to National Payments Corporation of India (NPCI).

Why in news?

• Six groupings, which included Facebook, Google, Amazon, Flipkart and others, had applied for NUE licences.

What is New Umbrella Entity (NUE)?

• NUE is an entity (under the Companies Act 2013) that will manage and operate the new payment system in the retail sector such as ATMs, POS, UPI etc.

• NUEs will be set up for profit entities that will manage payments in the retail space.
• These could offer a host of retail payment services, including setting up of ATMs, offering white-label, point of sale terminals, Aadhaar-based payments, remittance services, and develop newer payment methods.

• They will also manage clearing and settlement systems that could be an alternative to the bank-promoted NPCI.
• They will be allowed to charge fees for transactions (unlike the existing NPCI).
• All NUEs will have to be interoperable with the National Payments Corporation of India (NPCI).

Why need NUEs?

• The NPCI is at the epicentre of the digital payments in the country.
• RBI has introduced NUEs to end the so-called monopoly of NPCI.
• The central bank also noted that during the pandemic, with people spending more time at home the usage of e-commerce has increased, and there’s been a significant rise in the incidence of internet fraud, cyber-crimes.

If NPCI is doing its job well, then why NUE?

• 48% of all electronic retail payments in the country pass through the NPCI infrastructure.
• RBI’s concern stems from having the operations of so much of the country’s payment system concentrated in one entity.

How will NUE aid Consumers?

• With the introduction of NUEs, options for payment will increase for users.
• This will result in more competition and eventually help boost transaction volumes for both platforms as e-commerce expands and reaches deeper into India’s unbanked hinterland.
• In the World Bank’s most recent report on financial inclusion in 2017, some 190 million Indians did not have a bank account and more than half did not make or receive digital payments.
• Customers who face frequent sever transaction due to server overload currently have few options.
• In the new regime, they’ll be able to try the other platform.

What about Data Safety?

• Compliance as far as data safety and privacy is concerned holds good for all and sundry in the payments and banking space.
• Every entity involved in payments and settlement have to follow the same set of rules.
• RBI already have a new set of guidelines on “Regulation of Payment Aggregators and Payment Gateways” .
• It ensures that neither the authorised Payment Aggregators (PAs) nor the merchants on-boarded by them can store customer card credentials within their database or server to avoid data breaches and potential abuse.

Will NUEs replace NPCI?

• NUEs will co-exist with NPCI to strengthen the payment infrastructure network.
• A robust and resilient infrastructure is needed to ensure the government’s ambitious target of one billion digital transactions per day is achieved.
• NUEs will not replace but complement NPCI in taking India’s digital payment success story to new heights.
• By establishing a neutral and independent standards-setting body, we can make sure that the system as a whole in our country evolves in the best traditions of digital infrastructure adopted anywhere in the world.

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