National Payments Corporation of India (NPCI) could be called India’s very own fintech, proudly being showcased to the rest of the world. It was among the two Indian companies featured in the TIME 100 Most Influential Companies list for 2023.
While Unified Payments Interface (UPI) and RuPay card network are its flagship products, the homegrown Immediate Payment Service (IMPS), National Financial Switch (NFS), Bharat Interface for Money (BHIM), Bharat Bill Payment System (BBPS), National Automated Clearing House (NACH), and Aadhaar Enabled Payment System (AePS), have changed how India Inc deals with money.
NPCI continuously invests in technology upgradation, maintenance, advertisements, research, product innovation, and all of this are managed through internal accruals or net profits that it accrues every year. It closed FY23 with a whopping ₹828 crore in net profit, making it one of most profitable Indian fintechs.
Yet, it continues to operate as a non-profit for its objective of ‘public good’ and bringing more people into the formal economy. NPCI’s core idea is to push digital payments and financial inclusion.
But should it rethink its strategy for a larger good? “UPI is free but NPCI is still making money, so the business model is profitable and only increasing with the addition of RuPay cards and other products,” said a senior payments industry official, while asking why banks should bear the cost of UPI transactions despite NPCI’s strong financials.
V Balasubramanian, CEO, FSS, has a different take. “Only 200 million people are using digital means of transacting money. If another 800 million have to be brought into the fold, we need to subsidise.”
Clearly, monetisation of the payments infrastructure is a thorny subject with no clear answer, and continues to be a struggle for NPCI and private players alike.
Set up in collaboration with Indian Banks’ Association (IBA), NPCI was promoted by 10 banks, including State Bank of India, Punjab National Bank, Citibank, Bank of Baroda, and HSBC. In 2016, the shareholding was broad-based to 56 member banks,following which in 2020 new entities including Payment Service Operators, payment banks and Small Finance Banks were inducted.
Its monopolistic nature has encouraged conversations around its ability to solely control the market, tweak market requirements as per its requirements and push indigenous products.
After the central bank informally scrapped the plan for a new umbrella entity citing lack of “innovative or different applications”, private players, in hushed voices, will tell you that the lack of an independent holding or supervisory organisation means that NPCI wields “too much” power, leading to the absence of healthy competition, with no level-playing in the payments arena.
Innovation takes time. Established in 2008, NPCI started operations only in 2010and launched UPI in 2016. The industry is of the view, that to get to the next level, participation from private players must be encouraged and supported, for instance, through structures such as NUE (New Umbrella Entity).
Complete reliance on one entity to support an entire country’s digital payments infrastructure can be a concern. NPCI is registered as National Critical Infrastructure, which entails emphasis on cyber risk mitigation, monitoring overseas traffic, and constant oversight by the NPCI board and RBI. The UPI network processed a record 1,141 crore crore transactions in October 2023 worth ₹17.16-lakh crore, across 33 crore unique users and close to 400 participating banks. The contribution of UPI transactions in total digital transactions by volume increased from 4 per cent in FY18 to 52 per cent in FY22.
UPI transactions grew at a CAGR of 163 per cent between FY18 and FY23 in terms of value and 56 per cent in terms of volume. RuPay has grown exponentially at an annualised rate of about 40 per cent in FY17-FY22.
“Overnight, a PSU navratna can become a headache, which we have seen in the past,” said a source, adding that the entity’s future also depends on legacy and management.
Dilip Asbe, who has helmed the CEO position at NPCI since 2017, is recognised by peers and industry participants as a visionary, who is driven and aggressive about innovating and growing the organisation. Yet, given its scale and criticality, the payments giant needs to have succession management in place if Asbe’s good work is to be continued. That’s missing at present.
From NPCI’s perspective, ‘non-profit’ tag makes sense because an open market may also lead to capitalist and profit concerns of private players over-riding the government’s objectives of encouraging digital payments and financial inclusion at free or affordable costs for all citizens.
But, NPCI still has some ground to clear for a larger global acceptance, especially for UPI and RuPay. “How many countries issue RuPay cards? In India, you can build a majority product with government backing, but you have to let private players come in to be able to build that global scale,” said a senior payments expert, who did not want to be named.
RuPay has secured the third spot in terms of market share for debit cards-in-force. It is also looking to grow in the credit card market, by tying up with major bank and non-bank issuers. Adoption is being driven by benefits offered through value-added features such as linking of RuPay credit cards on UPI and issuance of RuPay prepaid forex cards overseas. About 25 per cent of all new credit card issuances are on the RuPay network. At present, of the over 30 crore UPI users, only 2.5-3.0 crore are credit card holders, even though 52 per cent of UPI customers are credit-active.
NPCI has grand plans such as to garner 10 per cent market share in monthly credit card spends, compared to the current 1 per cent share, which could translate to ₹1,300-1,500 crore of transactions.
Profitability conversations are then expected to arise once the government decides the NPCI has achieved or covered significant ground on its goals, garnered enough valuation (least $100 billion) and can be converted to a ‘Navratna’ and/or be listed on the exchanges.
If this is the end objective, perhaps some competition from India’s private sector could help – the way it worked for banks, power-generating companies and steel manufactures. Balasubramanian is confident that NPCI, too, will shed the benevolence tag. But may be over the next 10-20 years. “We aren’t there yet,” he believes.