INTRODUCTION
Cash in hand may still be the king, but with the technological development and enormous use of smartphones heading towards a count of more than 1 billion, the use of online payments/digital transactions is in the race at a high pace. Especially UPI online transactions saw an incredible surge in the lockdown period, the country witnessed around 16% increase in UPI online payment till July-August, 2021. Through UPI more than 300 Cr Rupees happened moreover around 6 Lakh Rupees were transacted using this particular mode of online payment. The growth, usage and advancement when it comes to online transactions have been a trouble-free road with minor bumps of crimes like fraud etc. But the problem at hand is that is a single entity enough to regulate the retail payment system in the country? From Reliance and Tata to Union Bank and Punjab National Bank to Amazon and Paytm, all these big companies are on a way to a straight shot to set up new umbrella entities for payment framework in the country. For what reason the organizations with any role in India’s tech or monetary administrative environment are putting forth an attempt to set up an NUE? What is an NUE, and for what reason are they required?
Recently, there has been a boost in the Retail Payment System (RPS). The demand for the same has increased in recent years especially at the time of the COVID-19 pandemic, due to the lockdown a rise was seen in RPS. Keeping in mind the changes and demands of society, the Reserve Bank of India (RBI) has proposed the idea of New Umbrella Entities (NUE). This is similar to Unified Payments Interface (UPI). The aim for this is to keep up with the security level and also to follow sustainable financial principles. It is expected to fill up the loopholes existing to date in the payment methods, to ensure the authentication and safety of users.
Until now National Payments Corporation of India (NPCI) a non-profit entity that has arisen as an efficiently significant instalment framework element in India because of the plethora of payment method frameworks it operates, like UPI, Bharat Bill Pay, AEPS, RuPay, Fastag, etc. Even though NCPI has been there for more than a decade and has developed as an efficient entity still players have called attention to the different entanglements of NPCI, one of which is that it is the main element dealing with all of India’s retail payment frameworks. From a monetary steadiness outlook, the RBI’s proposal to permit assorted elements to build up New Umbrella Entity (NUE) for the payment method in the country with the aim to increase the competition and technological advancement.
WHAT DOES NUE PROPOSE?
NUE is a system cum licence that will be granted by RBI as it holds the power of authority for the same. The system proposes a new framework for payments with extended standards and technologies. Also, as we know that financial frauds are very common nowadays, the system will prevent the same from happening. When the users start using a new mechanism or system for transactions, they also expect safety. This system has come up with fulfilling such expectations too.
The NUEs’ essential obligations are to work to operate, set up, and oversee new payment frameworks. This will be done in the areas including ATMs, White Label PoS, Aadhaar-based payments etc. Apart from this, NUE can also help in promoting fintech. As the security levels will increase along with technological advancements, it will gear up the scope of fintech. Further, the data storage will also advance by this new entity.
WHO CAN APPLY FOR NUE?
Application for NUE is open for all corporates, groups and promotors. Provided, they have an experience of more than three years in payment mechanism. It can be in the form of promotor, operator, service provider etc. The NUE is also open for foreign investors. They can apply for the same by following the Foreign Direct Investment Policy and related guidelines. It is necessary to comply to the norms of corporate governance and follow the regulations.
The applicant is required to meet the requirements and follow the prescribed procedure. Till now, the corporates have been pairing up with the banks to apply for NUE. In the same manner, other corporates can also form the partnership to comply with the guidelines of RBI. At end, RBI holds the authosrisation for grant of NUE if all the obligations have been fulfilled by entities.
LEGAL ASPECTS OF NUE
The plan of incorporation of an umbrella entity is as per section 8 of the Companies Act and it will hold the position of a company. The provision states the formation of companies with charitable objectives – under this, NUE can be registered as a company with the motive of easing various aspects of financing that too with increased security. Also, the company registered under this section can convert itself to any other form of the company too. The authorization of the same will be held by RBI as per Section 4 of the Payment and Settlement Systems Act, 2007. Also, apart from this, the regulation will be done by other appropriate provisions of the PSS Act too. Section 4 states the authorization of payment systems. This provision will ensure that the working of NUE is legally authorised so that scope of fraud diminishes. The section will play the role of setting up the regulations for the working of NUE. It will ensure the authenticated working mechanism which will reduce the risk for corporates too.
Further, the entities will be held by the Indian Citizens and this will be regulated as per the foreign exchange Management Act, 1999. This will also get amended from time to time as per the requirements of the Payment System Operator etc. NUE will also be ensured to compel with the norms of corporate governance such as MOA and AOA. The procedure will be similar to that of other business entities. Apart from this, the procedures from the advisory committee will be followed including Supervision of Payment and Settlement Systems (BPSS).
OPPOSITION BY CORPORATES
The idea of NUE has been strictly opposed by some corporations and commercial banks. It has been stated by them that instead of this, domestic NPCI can be strengthened. With the launch of new technologies day by day, it will not only make the processes complicated but, will also lead to unfair market competition. Also stating that the recent events cannot only be the sole reason to come up with whole new technology.
The issue has been addressed by RBI and it has been stated that there will be extensive guidelines for keeping everything systematic. The market competition will also flow positively. Also, this will deal with the concerns of commercial banks too. The illusion of adverse impact will fade away with time.
BOON OR BANE?
Various legal and commercial aspects are linked with NUE. Some positive yet, some negative. As mentioned above, the legal framework for the NUE has been designed in a way that fulfils all the requirements of a corporate. It also includes performance as a payment option. This states that the launch is well planned and is expected to bring up new technological features. From this aspect, the releases of NUE are highly favourable.
Therefore, it can be concluded that the New Umbrella Entities is a welcome advancement toward permitting private area cooperation in the improvement of India’s retail payment foundation just as the presentation of new frameworks and innovations to the overall population. However, the opposition by corporations and banks puts us in a myth. It is necessary to look after every aspect that too critically. It can be said that the concerns of corporations are also valid but, new launches cannot be stopped with the fear of market competition. It’s conceivable that more cooperative energies and development might arise in the fintech business, moreover, with the ascent of computerized instalments, offering NUE licenses to private players will facilitate the payment burden on NCPI further leading to advancement and better competition. NUE is itself a healthy aspect for keeping up the market on pace and can be seen as a boon to the Indian finance and commercial structure further resolving the problems with better regulatory framework.
CONCLUSION
Replacement of any traditional system is not an easy task, for over a decade now the NPCI has performed as the sole umbrella association for retail payment frameworks in India and hence the expansion to NUE will take time to cope with. However, all the specifications have been clearly stated by RBI. Till now, Tata Group has teamed up with a private bank to set their own umbrella entity. Likewise, this will have a good pace. The companies that are incorporating the NUE are giving a pathway for foreign investments. The most recent improvements in the retail payment area with the Tata Group, Reliance and Amazon is only the most recent in the competition between the many other organizations, who are now contending in the Indian retail area. The Tata Group is looking at a 68% stake in an Indian basic food item e-retail start-up i.e., Big Basket.
The Indian e-staple area is warming up with the world’s most extravagant man Jeff Bezos wagering on it with Amazon Easy Pantry service, India’s most extravagant man Mukesh Ambani increasing the game with Jio Mart. Tata, Reliance and other multinational companies have been adding their names to the list which is increasing the scope of implementation of NUE. This will also give a boost to e-commerce with safer options for its users. With all the present advancements and more to be added, NUE proves to be a fruitful concept. Not only from the perspective of banks and corporations but, for users too.