Payment and fintech players are optimistic about the draft proposal by the Reserve Bank of India to set up new pan-India umbrella entities focussing on retail payment systems, which will lead to robust competition and more innovation in the sector.

The move will also end the monopoly of the National Payments Corporation of India (NPCI), but it is unlikely that more than a few players will set up such entities.

Set up as an initiative by the RBI and the Indian Bank Association more than a decade ago, the NPCI is the only player in the sector, and some companies also see the proposal as a challenge to NPCI.

But with nearly 80 per cent transactions still done by cash, the development would mean that the payments arena will be opened to other players to set up similar entities that can then set up competing instruments.

Cash in circulation

Even as digital payments such as NPCI’s Unified Payment Interface and Immediate Payment Service (IMPS) register new records in terms of monthly volume and transactions, cash in circulation is still much higher. RBI data reveal that currency in circulation was up at ₹22.18-lakh crore as on January 31 this year.

“The draft proposal for new umbrella organisations for retail payments should be seen as a boost to the industry and not as something that takes away from NPCI,” said Naveen Surya, Chairman of the Fintech Convergence Council, adding that it is an opportunity for more payment firms to come up, and will complement the work of NPCI.

Upasana Taku, co-founder and COO, Mobikwik, said it is unfair to compare the NUE with NPCI, which has played an irreplaceable role in fashioning the industry, but it is too early to comment on the feasibility of the proposal.

“The NUE will only complement the burgeoning rate at which the digital payments industry is growing in the country. NPCI’s UPI is a product of global standard, and new entities in the vertical will only positively impact the fintech boom,” she said. The stringent criteria proposed by the RBI in the draft guidelines, such as a minimum paid-up capital of ₹500 crore, means that only a few serious players will be able to set up such entities.

“The guidelines allow any player to launch their own Rupay card or payment instrument.

“But how many people will have the capacity and skill to just focus on payments is to be seen. I don’t think it will be a challenge to any player, but will allow for more innovation and competition,” said Rajan Bajaj, founder and CEO of Bengaluru based fintech start-up, Slice.

Zero MDR regime

Further, with the zero MDR regime, margins in the business are under pressure, and companies believe not many will find it sustainable.

“Given the current policy uncertainty and the added concerns over zero MDR, people are revisiting their business models,” noted a player. The individual consumer is already spoilt for choice with a plethora of payment options from cash to credit and debit cards, IMPS, UPI, wallets, BHIM Pay, and AePS. But innovations could help better target people in the rural and underbanked segments who do not have access to a smartphone.

“Hackathons sponsored by NPCI have seen so many possibilities. Imagine the possibilities for lending, investment, insurance payments and neo-banking with another such entity,” said Anand Kumar Bajaj, founder of PayNearby.

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