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What Are New Umbrella Entities & Why Are Bank Unions Opposing It?

·4-min read

The State Bank of India union and a global alliance on Tuesday, 8 June, asked the Reserve Bank of India (RBI) to bar large companies from setting up payment networks, stating that privatisation could compromise data safety.

Last year, RBI invited companies to create a new New Umbrella Entities (NUEs) network that would rival the country's flagship processor, the National Payments Council of India (NPCI).

Amazon, Google, Facebook and others have also applied for such licences in partnership with Indian companies such as Reliance and ICICI Bank, reported news agency Reuters.

What Is NUE?

New umbrella entities will be set up for profit entities that will manage payments in the retail space.

According to the RBI guidelines, these private entities can offer a host of retail payment services, including setting up of ATMs, offering white-label, point of sale terminals, Aadhaar-based payments, remittance services, and develop newer payment methods.

RBI has introduced NUEs to end the so-called monopoly of NPCI. The central bank also noted that during the pandemic, with people spending more time at home the usage of e-commerce has increased, and there’s been a significant rise in the incidence of internet fraud, cyber-crimes.

Earlier, in February 2020, transactions by mutual fund investors were disrupted during an upgrade of the system. Therefore, to reduce the “risk concentration” of only one platform and offer consumers more options, RBI invited private companies to bid for a licence to set up a new payment platform.

What’s The Problem?

The letter urged the central bank to scrap the "whole process of NUE licensing" and focus on strengthening the domestic payments group, NPCI, which operates as a non-profit.

Sharat Chandra, industry expert and a blockchain and emerging tech evangelist believes that the grounds of opposition, by UNI Global Union, IT for Change, Joint Action Committee Against Foreign Retail and E-commerce (JACAFRE) and the All India State Bank of India Staff Federation (AISBISF), are flimsy .

Meanwhile, the protesting groups have no locus standi as far as New Umbrella Entities (NUEs) is concerned.

RBI’s draft framework for NUE, issued on 10 February 2020, clearly states that the NUE shall be a ‘for-profit’ or a Section 8 Company as may be decided by it incorporated in India under the Companies Act, 2013.

"“NUEs will be governed by the rules and provisions of the Payment and Settlement Systems Act, 2007 (PSS Act) . Therefore, concerns around data privacy and data sovereignty are misplaced and unfounded. There are enough checks and balances in the PSS Act to ensure safety and compliance”" - Sharat Chandra,Blockchain & Emerging Tech EvangelistHow Will NUE Aid Consumers?

With the introduction of NUEs, options for payment will increase for users. This will result in more competition and eventually help boost transaction volumes for both platforms as e-commerce expands and reaches deeper into India’s unbanked hinterland.

In the World Bank’s most recent report on financial inclusion in 2017, some 190 million Indians did not have a bank account and more than half did not make or receive digital payments.

Customers who face frequent sever transaction due to server overload currently have few options. In the new regime, they’ll be able to try the other platform.

What About Data Safety?

Compliance as far as data safety and privacy is concerned holds good for all and sundry in the payments and banking space.

Every entity involved in payments and settlement have to follow the same set of rules.

In March , RBI came up with a new set of guidelines on “Regulation of Payment Aggregators and Payment Gateways” to ensure that neither the authorised Payment Aggregators (PAs) nor the merchants on-boarded by them can store customer card credentials within their database or server to avoid data breaches and potential abuse.

Will NUEs Replace NPCI?

NUEs will co-exist with NPCI to strengthen the payment infrastructure network. A robust and resilient infrastructure is needed to ensure the government's ambitious target of one billion digital transactions per day is achieved.

"NUEs will not replace but complement NPCI in taking India’s digital payment success story to new heights. RBI’s decision to allow fintechs and payment companies like Visa and Mastercard to process NEFT and RTGS payments is a step towards creating an enabling environment for NUEs to succeed," Chandra explained.

Also Read: RBI Cuts GDP Growth Forecast for FY22 to 9.5%; Repo Rate Unchanged

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