RBI move to create a counterpart to NPCI needs a rethink

The RBI’s proposed plan to set up a for-profit umbrella entity to manage digital payments in the country alongside the not-for-profit National Payments Corporation of India (NPCI) is somewhat perplexing. It underscores the uncertainties around managing and regulating the still-evolving web-enabled payments and settlement systems in India. Draft guidelines issued by the central bank recently suggest that the RBI would seek applications from private companies for a “New Umbrella Entity” for retail payment systems. The NPCI, the incumbent umbrella entity that is credited with transforming India’s digital payments landscape, has been in existence for over a decade. A ‘not for profit’ company, the NPCI has been set up by the RBI and the Indian Banks’ Association as a consortium of six public sector banks and four private banks. Besides bringing innovations in the retail payment systems, it is also effectively handling a sea of online financial data. Its unique payments platform, Unified Payment Interface or UPI, has been well accepted. Just last month, the UPI saw more than 130 crore transactions that led to a money transfer worth ₹2.16-lakh crore, an all-time high. The NPCI also supports and promotes Aadhaar-enabled payments services and the RuPay card network. It collaborates with nearly 144 banks. Sparing some alleged issues around transaction delays and network compatibility bugs, the NPCI platform has done reasonably well.

Introducing a commercial competitor to the NPCI raises a wide range of questions. The RBI stipulates a minimum capital base of ₹500 crore and net worth of ₹300 crore; hence, a nimble outlier does not stand much of a chance. Only an established private player with sufficient experience and interest in the digital payments space fits the bill. Such a player will have the same degree of access to financial data, even while operating under a ‘for profit’ framework. This raises regulatory issues that the RBI should consider. Online payments platforms are a booming market where, according to payment platform Razorpay, digital payments grew a whopping 383 per cent from FY18 to FY19. According to the RBI, total digital transactions in volume terms grew 58.8 per cent during FY19. Issues of data privacy breach and misuse should be ironed out.

The RBI must think through its move of creating a private counterpart to the NPCI, and take the views of all stakeholders into consideration. Its plea that the NPCI has ‘become too big to fail’ and needs a Plan B requires more elaboration, as the NPCI is not a commercially driven entity. Rather than create an altogether new body for managing digital payments, the RBI should focus on making the NPCI more efficient and accountable. Introducing more public scrutiny into the NPCI — which runs important public utilities — by bringing it under Right to Information Act can be a good start.

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