Context: Recently, the companies such as Reliance, Tata, Amazon and Paytm with any presence in India’s tech or financial services ecosystem are making a beeline to set up new umbrella entities (NUEs) for payment systems.

Background

• In February 2020, the Reserve Bank of India (RBI) has proposed to set up a new pan-India new umbrella entity (NUE) or entities focusing on retail payment systems with a minimum paid-up capital of Rs 500 crore.
• The NUE should conform to the norms of corporate governance along with ‘fit and proper’ criteria for persons to be appointed on its board.
• The RBI retains the right to approve the appointment of directors as also to nominate a member on the board of the NUE.

About New Umbrella Entities (NUEs)

An NUE will be a non-profit entity that will set-up, manage and operate new payment systems, especially in the retail space such as:

• ATMs, white-label PoS;
• Develop payment methods, standards and technologies;
• Monitor related issues and internationally;
• Take care of developmental objectives like enhancement of awareness about the payment systems; and
• Aadhaar-based payments and remittance services

The NUEs will develop new payment methods, standards and technologies as well as operate clearing and settlement systems.

Eligibility: The entity eligible to apply as promoter or the promoter group for the NUE should be ‘owned and controlled by residents’.

• The entity should have 3 years’ experience in the payments ecosystem as Payment System Operator (PSO) or Payment Service Provider (PSP) or Technology Service Provider (TSP).
• Any entity holding more than 25 per cent of the paid-up capital of the NUE will be deemed to be a promoter.
• The eligible entity will be a company incorporated in India under the Companies Act, 2013.
• The Company may be a ‘for-profit’ or a Section 8 company as may be decided by it.

Need for New Umbrella Entities (NUEs)

• The umbrella entity for providing retail payments system is NPCI, which is a non-profit entity, owned by banks.
• NPCI operates settlement systems such as UPI, AEPS, RuPay, Fastag, etc.
• The players in the payments space have indicated the various pitfalls of NPCI being the only entity managing all of retail payments systems in India.
• The RBI’s plan to allow other organisations to set up umbrella entities for payments systems aims to expand the competitive landscape in this area.
• As per the RBI, no single promoter or promoter group should have more than 40 per cent investment in the capital of the entity.

Significance of New Umbrella Entities (NUEs)

• It will operate clearing and settlement systems, identify and manage relevant risks such as settlement, credit, liquidity and operational.
• It aims to preserve the integrity of the system, monitor retail payment system developments and related issues in the country and internationally.
• It will avoid shocks, frauds and contagions that may adversely affect the system and the economy in general.
• A strong digital payments ecosystem is critical for many businesses to thrive, be it ecommerce or ride hailing.