RBI proposes New Umbrella Entity for retail payment systems

The Reserve Bank of India (RBI) has proposed to set up an alternative digital retail payment system similar to the National Payments Corporation of India (NPCI) for consumers.

"Availability of New Umbrella Entity (NUE) offering products which will lead to the redundancy of existing systems can, besides addressing concentration risk, also encourage competition and innovation, thus contributing to financial stability," the RBI said in its 20th issue of the Financial Stability Report (FSR).

The New Umbrella Entity would help in enhancing the reach of digital payments to a larger number of people and thereby reduce the dependency on cash, the central bank added.

RBI plans to encourage competition, innovation and reduce concentration risk to achieve financial stability in the retail payment system. At present, NPCI is an umbrella organisation for retail payments systems and processes close to 60 per cent of retail electronic payment transactions.

In recent months, Unified Payments Interface (UPI), which is operated by NPCI, has achieved unparallel heights. In November, UPI registered about 1.2 billion transactions adding up to nearly Rs 1.9 lakh crore, according to NPCI. Three non-bank entities - Paytm, PhonePe and Google Pay - currently hold over 90% of the UPI market share.

Ten days ago, RBI governor Shaktikanta Das had talked about NPCI's plan to set up a subsidiary to focus on taking the UPI model to other countries. Das did not reveal more details on the same.

Meanwhile, RBI is planning to provide access to non-banks in centralized payment systems (CPS) through this move.

"Internationally, central banks are expanding access to payment systems by enabling various types of non-banks to become members. Providing direct access to non-banks can quicken their access to funds by pruning one layer and also reduce their costs," the central bank said.

The central bank will examine the case for increased participation of non-banks in CPS.

At present, non-bank participants who have been permitted access to CPS are standalone primary dealers, clearing corporations, central counterparties, retail payment system organisations, select financial institutions (NABARD, Export-Import Bank of India (EXIM Bank)) and DICGC.