National Umbrella Entity(NUE): Do We Need Another NPCI?

Several Founders, Co-Founders, CXO Bankers, CXO Fintech professional & people who participated in the ePanel discussions:

Mr. B.Sambamurthy, Former Director and CEO, IDRBT and Chairman NPCI
Mr. Sunil Dalal, Managing Director Softcell Technologies Global Private Ltd
Mr. Kamonasish Aayush Mazumdar, Founder & CEO at Foodieverse
Mr. Arun Tanksali, Co-founder & CTO, Nearex
Mr. Abhishek Arun, Chief Operating Officer, Paytm Payments Bank
Mr. Himanshu Khare, former Head Corporate Legal & Advisory, VISPL
Mr. Ishan Vaish, India Partnership Manager- Worldwide Developer Relations, Apple
Mr. Salil Chugh, Head Analytics and Data Partnerships, Experian Asia Pacific
Mr. Ajay B Panicker, CEO & Founder, NetPay Limited
Mr. Piush Kothari, Head of Business Operation, Walt Disney Direct to Consumer & International
Mr. Fareed Jawad, VP-Product Development, Spreedly
Mr. Hitesh Thakkar, Fintech Consultant, Self-Service Automation
Mr. Vikas R Panditrao, Co-Founder, Forum of Industry and Academic Knowledge Sharing (FIAKS)
Many other CEO/CXO Bankers & Fintech professionals on FIAKS Forum requested to remain anonymous

National Umbrella Entity (NUE) is a regulatory guideline that invites applications to create NPCI like institutions in the country. The regulator is allowing for-profit organizations to enter this space. So now, the FIAKS community is questioning;

Question 1: Will for-profit organizations ever work on products that will cater to non-smartphone users or users who do not have any devices?

Question 2: Will for-profit organizations ever work on products to win for the bottom of pyramid customers?

It has happened everywhere, will happen in banking too, that’s why entrepreneurs exist, employee mindset won’t solve.
We have a very socialistic mindset by default and this is nowhere else more harmful than in banking institutions because this is where money starts circulating. In any space that exists, competition is almost always the best way for the sector to do well for everyone, including the bottom of the pyramid customers.
Questions 1 & 2 are one of the key primary points for payment governance by NPCI. 75% plus population is in Tier 2,3 and below areas – real financial inclusion will not be successful if these segments are excluded.
In a small city/town like Junagadh in Gujarat, there is a Deutsche Bank branch/ATM – so that kind of bucks the usual perception of Foreign Banks.
A member said, “Likes of an HSBC & SCB don’t have rural customer segments. But are expected to offer zero balance account as per Jan Dhan regulation as per my understanding.”
Another member made a point, “UPI would be never it is today without Google Pay, Phonepe, Paytm. For-profit organizations are behind the success of NPCI. Now NPCI needs Whatsapp Pay for UPI to reach 1.5 billion a day. So for-profit organization is the success mantra. Allow more players to come in. NUE is not a social initiative to serve the poor unprofitable sections of society. If so then no one will apply.”

Question 3: Have you ever seen for-profit organizations i.e. MNC banks/Private banks ever sell no-frill accounts to customers? OR shown any interest in opening branches in rural areas?

Upon this a member questioned, why should any organization sell any service or product which has nothing to gain for the company itself? including government organizations.
I am not sure if in this discussion of “for-profit” n “non-profit” is there any relevance being assigned towards information security protocols n maturity to deal with these issues particularly so when it’s “privacy by design” rather than leaving it to be “opted in or out” vis a vis “devices” which are “smart or not (regardless)” used by 100s of millions of ill-informed; technologically challenged; legal rights impaired; surviving day to day for daily wages kind of underprivileged people of this country…
This discussion can be very interesting particularly on the topic of non-smartphones being able to handle the technology nuances of a fintech driven application which has to be operated by a technologically and socially underprivileged set of our people who are in absolute need of a fintech solution to deeper and broaden there reach to financial inclusion…

Above all the big question is why do we need another NPCI? Why can’t NPCI be the umbrella entity itself and let various new organizations for profit or for non-profit be a part of existing NPCI?

Here are some views put forth by members in this regard;

Firstly, are there any such global examples of multiple payments governing bodies in a single country?
NPCI is a centralized organization and not an umbrella organization. Why do you need BBPS? You have seen what NPCI did with payment gateways providers.
Card associations are losing out big time in India. NUE is all to help them.
Regulatory authorities and government will allow initially to set-up for profit. Once the new NUE builds a commercially successful business then the regulator will cap the pricing or make it zero making it non- profit.
A member says, “NUE license to be made available on tap to anyone who fulfills the criteria of the regulator. Make all the systems interoperable rather than building proprietary once. With more competition, more innovations, more alternatives, the newer market segment would be tapped. Allowing for-profit is good. Promoter entity is here for profitable business and not charity. Remember PSU Banks were forced to invest in NPCI. I would say disqualify not-for-profit applications”
A member states, “NPCI occupies a gray zone in trying to be both a private organization and a policy enforcer. This was kind of evident when the BHIM app was launched with much fanfare by the Government. There were questions about why private UPI apps need to exist. Today, due to a multitude of reasons, the non-BHIM apps are miles ahead in user adoption. I think I can make the rather bold assertion that without GooglePay and PhonePe the number of users or transactions would be far smaller than it is today.”
Another member states, “I am also of the opinion that without GPay, PhonePe, UPI would not be where it is today. But I also wonder if not for BHIM would it have encouraged the others to get in so seriously? UPI existed much before BHIM. But only after the BHIM push post demonetization did others jump in with seriousness. In my view, they were the catalyst. The conflict is sure there and now that they have played the part.”
A new NPCI equivalent entity might do exactly that to the broader payments space and take it into areas we don’t think they can. Having a second entity will also clarify NPCI’s own position as just one among equals, hopefully without any special treatment. It may hopefully make the Government think more carefully about announcing fee waivers without compensating the players involved, with the new players likely to argue their case more strongly. It’s like Air India running on taxpayer money, and ruining the market for private players, and then chasing Mallya for his dues when Air India losses are 10x. If government/defense officials weren’t forced to fly Air India, by paying double of private-airline rates. Air India’s losses would be even more. Almost all industries, with public entities, are the same, burning taxpayer money and competing against private players with the power of public money.
Someone should be smart enough to know that the government can’t run not-for-profit and non-profitable enterprises beyond 12 months + shrinking market share = sale in N many months. Of course, this will never happen but unless a rule like this comes along, India will never really grow to its potential. These subtle changes should be how good governance should be ushered in.
Another member said, “In my view, NPCI has done a great job and will continue to do so but there is always something more or better possible. NUE is an attempt by the regulator in that direction, 3-4 players would meet the criteria, and then it is for the market to decide who to accept.”
Is our system (NCPI or RBI or gods know which other regulatory authority) actually capable of strengthening the underprivileged set of majority Indians who cannot afford a smartphone and hence NPCI is now considering regulations for non-smartphone devices for fintech reach…are we even prepared to handle this at the Client end becoz in my personal opinion (and I may be wrong since it’s the technology-oriented point) non-smartphone will be inapt in providing “privacy by design” security protocols particularly “vulnerability and penetration safeguards”…I am not sure on this point just opening it up for the discussion of the well informed

Let’s introspect further:

The challenge in this country is that we do not want to fix what we have but hope that something new will change the ills of the existing and may end up with more of the same. NPCI is actually a mirror of MasterCard and Visa except that because it is not foreign and there was/is a vacuum to get something done in payments.
So, RBI/MEITY/Government needed some nodal agency and NPCI became one. You ask people in the industry and most people would say NPCI is a Government body that is absolutely false but credit to NPCI to play that role to facilitate multiple things which the government, sometimes or originally RBI and even private bodies like ispirit wanted to push.
There is scope for another or more institutions and a new mindset. Just for example – if you are a stockbroker and you go to BSE, you can go live plug and play without hiring a software co-buying software for IMPS, connecting with NPCI; doing testing, and then going live.
How many banks have spent countless months doing certification, adding technical partners, go live, and recon?
A member states, “The problem in policymaking is that you will have to open up NUE to multiple partners and as per me there will be space for not more than 2 to have a meaningful and sustainable business”.

Talking about BHIM;

BHIM was the MVP that got all banks to connect to UPI and solved all problems of the initial SDK versions. The best way to solve product problems is to keep them near and solve them. It is because of wanting to make BHIM work that NPCI folks put in a huge amount of effort in getting the initial teething issues resolved to create a runway for the private apps. Kudos to NPCI for the way they ran it.
It’s just a conflict of interest, for the regulator to compete against licensees. especially in the current scenario where Google or WhatsApp is facing so much heat for lack of support, and liability.
It’s not like BHIM is a model operator when it comes to supporting or fraud. BHIM showed the way for how to do payments without having to worry about license or support. Why barking at private operators then?

The main reason quoted is a systemic risk that NPCI runs. Single point of failure risk;

What is the risk of failure? Is NPCI bigger than SBI? Then SBI can also fail, isn’t it?
Innovations at the ecosystem-level consume significant time and effort from all participants. That’s why UPI took the time to bloom. Private capital will drive innovation faster, but in India, especially with large government ownership, adoption of such innovations or alternatives takes time. SWIFT INDIA is a good example of an alternative to SFMS. But network-level risks impact the whole ecosystem and all players. Today RBI is the only alternate payment player with RTGS & NEFT. Availability risks and settlement risks would also be a concern.

What if NPCI is allowed to be for-profit?

Allow NPCI to be for-profit and define regulations to allow profitable business models to come up for target segments for financial inclusion.
The conflicts of interest argument mentioned do not go away with more players. It goes away with a clear direction to follow. There are good learnings basis of the growth and innovation that has happened in the last 4 years. Regarding efficiency define what is quality and keep the company accountable to it.
There are examples in APAC where governments owned monopolies are efficient and profitable. Even India has examples if we move away from popular perception. On the other hand – there are examples of infrastructure sectors that have not fared too well on service levels or efficiency with too much competition.
NPCI should not be “controlled” by the reigns of the government. At some point in time, it will start stifling innovation. Making NPCI for profit also helps them invest more in branding marketing and positioning. It will also help them get better talent. Making NPCI more independent and for-profit will help them build better on marketing.
While UPI needs to be “almost free” or incentivized to grow and scale further; at some point in time the viability of maintaining infra, growing product, and marketing – the economics of UPI will not work for many incl NPCI. The financial inclusion agenda cannot be furthered over the coffins of players who couldn’t survive due to unviable cost structures

Finally, here are some worthy insights from the FIAKS community expert.

REGISTER and READ personal views of Mr. B Sambamurthy, Former Director and CEO, IDRBT and Chairman NPCI