New umbrella entity for retail payments can be 'for-profit': RBI

The Reserve Bank of India (RBI) on Tuesday released the framework for establishment of a new umbrella entity for retail payments. This entity will be tasked with setting up, managing, and operating new payment systems in the retail space. It may operate as a ‘for-profit’ organisation, the RBI said.

“The entity formed shall be a company incorporated in India under the Companies Act, 2013, and may be a ‘for-profit’ or a Section 8 Company as may be decided by it,” the RBI said.

According to the RBI guidelines, the entity will have minimum paid-up capital of Rs 500 crore, with no single promoter group holding over 40 per cent investment in the capital. Initially, the promoter should have a minimum of Rs 50 crore at the time of submitting the application.

“The promoter/promoter group shareholding may be diluted to a minimum of 25 per cent after 5 years of commencement of business of the umbrella entity, and a minimum net worth of Rs 300 crore be maintained at all times,” the RBI added.

Earlier, the central bank had released draft guidelines and invited industry comments. It has now called for applications from interested parties till February 26, 2021.

Based on the framework, payments system operators, as well as payments and technology service providers with three years of experience, are eligible to apply.

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The new entity will have to abide by corporate governance norms and the ‘fit and proper’ criteria for persons to be appointed on the board. The RBI may nominate a member to the board too, and has the right to approve of the appointment of directors.

This new entity will be tasked with operating payment systems such as ATMs, white-label PoS, Aadhaar-based payments, and remittance services.

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Further, it will manage clearing and settlement systems for participating banks and non-banks, and also monitor developments in the retail payment system and related issues, both in India and abroad, in order to avoid shocks.

“It is expected that the umbrella entity shall offer innovative payment systems to include hitherto excluded cross-sections of the society, and which enhance access, customer convenience, and safety, and the same shall be distinct yet interoperable,” the RBI said.

Reducing the dominance of the National Payments Corporation of India (NPCI) — which offers and manages a slew of platforms such as Unified Payment Interface (UPI), Bharat Bill Payment Systems (BBPS), Aadhaar-Enabled Payment Systems (AePS) — is the RBI’s objective. NPCI was set up by the RBI in 2008. Prior to its formation, the central bank had set up the National Electronic Funds Transfer System and Electronic Clearing Service.

In a 2019 policy paper, the RBI had said it was concerned with a few entities in the payments space having become too big, which had led to higher concentration risk. In the paper, the RBI noted that the NPCI had become pivotal to operations of many retail payment systems. There is ‘concentration’ of many complicated systems and tasks under its ambit, which creates conditions for monopolistic behaviour in terms of quality of service, or access to and charges on services.