Money & Banking

NPCI’s monopoly in payments and settlements space set to end soon

Mumbai | Updated on February 11, 2020

RBI allows pvt players to apply for licences to set up umbrella payments systems

National Payments Corporation of India’s (NPCI) reign as the sole umbrella organisation operating retail payments and settlement systems could come to an end with the Reserve Bank of India allowing private entities to apply for a licence to set up rival umbrella entities.

The RBI said that entities keen on setting up a pan-India New Umbrella Entity (NUE) for retail payment systems can incorporate a company in India under the Companies Act, 2013. The NUE should have a minimum paid-up capital of ₹500 crore.

Per the RBI’s draft framework for authorisation of NUE, the scope of its activities will include setting up, managing and operating new payment system(s), especially in the retail space. These will consist of but not be limited to ATMs, White Label Point of Sale (PoS); Aadhaar-based payments and remittance services; developing new payment methods, standards and technologies.

Currently, NPCI is the sole umbrella organisation operating retail payments and settlement systems in India. As many as 56 member banks are shareholders in NPCI.

The new umbrella entity’s activities will also include monitoring payments-related issues in the country and internationally and increasing awareness about payment systems.

Capital norms

The NUE cannot have any single promoter/promoter group with more than a 40 per cent share. The promoters should contribute not less than 10 per cent — ₹50 crore — of the capital up front at the time of applying for the NUE licence.

The promoter/promoter group shareholding will be diluted to a minimum of 25 per cent after 5 years of commencement of business by the NUE. A minimum net-worth of ₹300 crore shall be maintained at all times.

Per the draft framework, an entity eligible to apply as promoter/promoter group for the NUE should be ‘owned and controlled by residents’ (as defined in the Foreign Exchange Management Act Regulations) with 3 years’ experience in the payments ecosystem as Payment System Operator (PSO)/Payment Service Provider (PSP)/Technology Service Provider (TSP).

The shareholding pattern should be diversified. Any entity holding more than 25 per cent of the paid-up capital of the NUE will be deemed to be a promoter.

The company may be a ‘for-profit’ or Section 8 company as may be decided by it. Foreign entities are also allowed to hold a stake in such a company as long as it is compliant with FDI rules.

Published on February 11, 2020

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