Vault Matters | An alternative to NPCI is needed, but is tough to create 

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When National Payments Corporation of India, NPCI, was set up about close to two decades ago, little did someone envisage that it would have such a lasting impact on the lives and businesses of millions of Indians. A few weeks back, when the payments infrastructure gave way like other technology platforms, it once again raised an important question- is it time to have an alternative to NPCI?

About six years ago, the Reserve Bank of India conceptualised New Umbrella Entity, or NUE, as a parallel system to NPCI. The idea driving NUE was what if NPCI becomes incapacitated. The RBI opened doors for the private sector to apply for NUE licenses and it received very good reception within months of the option opening up. But this was also the first instance when the central bank decided to put the idea of NUE on hold. In a press statement around 2021 the RBI said it did not receive applications which were innovative enough for NUE to be implemented.

Thus ended the story of finding an alternative to NPCI.

The need to find an alternative has once again surfaced. But unlike three years ago, a lot of NPCI’s offerings are no longer experimental payments product. Not just the UPI, but even services such as BillPay and the BHIM app are becoming mainstream for consumers and NPCI in equal measures. The moot point, therefore is, can we have a viable alternative to NPCI, which has already evolved significantly on the payments front in terms of innovation, efficiency and comprehensiveness. It’s far from an easy question to address.

We also needs to look into certain commercial elements to assess the alternatives. NPCI being an arm of the RBI is a non-profit organisation. While over years, it has grown to make significant profits and operate as a standalone organisation without much dependence upon the RBI for its financial resources, at the core, the payments giant remains an entity which is not solely driven by the objective of making profits. This ethos has helped make significant inroads in terms of innovation and product evolutions.

NUE, on the other hand, was envisaged as for-profit enterprise. The conflict starts right there and explains partly why the idea never gathered political and institutional momentum. But to be fair, should the private players participate in an exercise like NUE, what’s the incentive if the license aspirants cannot see light at the end of the tunnel, especially when the upfront capex is expected to be humongous?

Can we have a QR based payments solution where merchant discount rates are totally waived and another one created by private entities who are free to charge a fee on QR based payments?

With these basic conflicts still unaddressed and probably they may never find a viable solution, building an alternative to NPCI seems to be a distant dream.

Instead, why not adopt the State Bank of India model?

Let NPCI remain the primary holding company like SBI. Below it, build subsidiaries which can rope in private capital to build out products such as BillPay or BHIM app. This might help free up the bandwidth of NPCI which can focus more on enhancing the basic infrastructure for payments and innovation can be outsourced to ensure long term stability and sustainability. Of course, the intellectual properties will vest with NPCI.

This option may also help cement NPCI’s aspiration to remain India’s payment major.