New umbrella entities explained: Why India has delayed their retail payment systems

The NUE licence shall beryllium granted by RBI according to the powerfulness of authorization of outgo operations conferred nether Section 4 of the Payment & Settlement Systems Act (‘PSSA’), 2007.

By Trisha Shreyashi

In a bid to boost the Retail Payment System (‘RPS’), Reserve Bank of India (‘RBI’) had travel up with the connection of “New Umbrella Entities” (‘NUE’), akin to Unified Payments Interface (UPI). While NUEs beforehand backstage participation, it became pertinent to guarantee that user information is secured. Further, it is indispensable that sustainable fiscal principles are followed truthful that the motto of de-risking payments ecosystem is achieved successful essence. NUE is seen arsenic an alternate mechanics to India’s flagship processor, the National Payments Corporation of India (NPCI).

The NUE licence shall beryllium granted by RBI according to the powerfulness of authorization of outgo operations conferred nether Section 4 of the Payment & Settlement Systems Act (‘PSSA’), 2007. In consonance, RBI announced a draught model to authorise pan-India NUE for RPSs. It mandates a minimum of INR 300Cr. beryllium maintained arsenic reserves astatine each times. These NUEs shall beryllium duly registered nether the Companies Act, 2013. Further, lone entities owned and controlled by Indian residents staying successful India successful preceding fiscal twelvemonth for much than 182 days, shall beryllium eligible to use arsenic promoter/promoter group. This indicates the volition to bounds the relation of overseas entities, portion allowing overseas concern nether diktat. It is besides taxable to firm governance norms and RBI retains the close to approve/appoint Directors to the Board.

These NUEs would beryllium chiefly liable successful processing caller outgo systems, standards and technologies, clearing and colony mechanisms, portion monitoring, addressing and preventing applicable risks and frauds. It would diversify casual outgo options beside boosting transaction volumes with tremendous enlargement of e-commerce. Thus, NUE could besides go instrumental successful furthering fiscal inclusion and promotion of fintech.

However, the NUE authorization has been shelved citing information retention and localization issues contempt being projected with a presumption to minimize attraction risks successful RPS. A 5 subordinate committee nether the chairmanship of P. Vasudevan, Chief General Manager, RBI has been directed to reappraisal licence applications, analyse macroeconomic interaction and information risks successful airy of the projected framework. Announced astir a week ago, it shall besides enactment distant recommendations to code the concerns frankincense arising.

Other impediments indispensable besides beryllium considered to measure the adverse impact, if any, connected the banking ecosystem. For instance: Capital, infrastructural costs, exertion requirements successful deploying products, colony absorption & operations, emergence successful risks owed to reconciliation & information issues, liquidity costs to enactment escaped travel of funds by customers etc. It besides seems prudent to analyse the interaction connected smaller banks. Forced to deploy further outgo instruments modeled connected zero pricing strategy, they’d extremity up bleeding more.

Commercial banks had vehemently opposed the NUE proposal. They had urged alternatively to fortify the home NPCI. While the thought of NUE is to grow the competitory scenery of RPS, the contented of information transportation and information involving overseas entities is so a bonafide objection. Moreover, the array of events that unfolded successful the caller past marque it prudent to announcement that the concerns are not unfounded. For instance:- Failure by Mastercard, Amex & Diners Club successful furnishing audit reports certifying compliance with Indian norms successful respect to information retention rules.

To code the concerns, RBI announced extended guidelines that are mandatory for each entities progressive successful payments & settlements to follow, to support and forestall breach oregon misuse of the lawsuit details successful their database. The Personal Data Protection (PDP) Bill, nether reappraisal earlier the Joint Parliamentary Committee, mightiness beryllium to beryllium a crippled changer successful gathering a robust information retention & processing system. For the clip being, India could subscribe to Global Data Protection Regulation (GDPR) to onslaught a equilibrium betwixt user woes and commercialized interests, until a germane information extortion model for fintech is enacted.

Disclaimer: The writer is simply a ineligible professional. Views expressed are idiosyncratic and not needfully that of Financial Express Online