The Reserve Bank of India (RBI), will set up a five-member committee to scrutinise applications and submit recommendations on New Umbrella Entity (NUE) licenses. The five-member group would be led by RBI Chief General Manager P Vasudevan. However, the identities of the committee’s other four members are currently unknown, ET Reported.
The committee will look into a variety of issues of the NUE framework, including the scheme’s macroeconomic impact and security risks. The RBI would consider the committee’s suggestions before granting any licenses.
What is a New Umbrella Entity (NUE)?
Up until now, the National Payment Corporation of India (NPCI) was the only umbrella organization operating for retail payments and settlements in India. The RBI came up with the idea of an NUE to enable businesses to create for-profit entities, foster competition, and limit risks posed by concentration of infrastructure to the Indian digital payments ecosystem.
The RBI issued a policy paper in 2019 expressed its interest in setting up NUEs. In August 2020, it released a ‘Draft Framework for Authorisation of a PAN India New Umbrella Entity (NUE) Retail Payment Systems’. The NUE license would enable a participating agency entity to develop a pan-India control on payments solutions, rivaling the likes of the NPCI.
The RBI designed the framework to aid organizations in the development, management, and operation of innovative payment systems in the retail sector. ATMs, White Label PoS, Aadhaar-based payments and remittance services, newer payment methods, standards, and technologies, as well as clearing and settlement systems for participating banks and non-banks, all fall under this category.
Six consortia, including firms like Amazon, Tata, and Reliance had applied for the NUE license.
Why did the RBI delay the program?
The RBI put the program on hold in light of the recent data breach incidents in the Fintech industry. Further, multiple entities have not complied with the data localization requirement- even though many years have passed since the RBI first issued a direction in this regard.
In addition, a group of Indian and global unions wrote to the RBI seeking a review of the NUE framework. In a letter, the groups cautioned that allowing MNCs access to payment infrastructures and associated data would compromise India’s data sovereignty. Further, the unions questioned allowing foreign firms like Amazon to set up NUE, which is facing several investigations in India and abroad regarding its business practices.
Ultimately, they argued that NPCI (a non-profit) has a significant competitive advantage and is taking its solutions to the global payment landscape. It said,” we are not sure why India would choose to squander this advantage, and head-start, by now privatising digital payment infrastructure platforms.”