New Umbrella Entity (NUE) Network

  • The Reserve Bank of India (RBI) is said to have halted licensing for the New Umbrella Entity (NUE) network, a fintech institution intended to compete with the National Payments Corporation of India (NPCI).
  • Six groups had applied for NUE licenses, including Facebook, Google, Amazon, Flipkart, and others.

What is New Umbrella Entity (NUE)?

  • NUE is an entity (as defined by the Companies Act 2013) that will manage and operate the new retail payment systems such as ATMs, POS, UPI, and so on.
  • NUEs will be established for-profit entities to manage payments in the retail space.
  • These could provide a variety of retail payment services, such as the installation of ATMs, the provision of white-label point-of-sale terminals, Aadhaar-based payments, remittance services, and the development of newer payment methods.
  • They will also oversee clearing and settlement systems that could serve as an alternative to the bank-sponsored NPCI.
  • They will be able to charge transaction fees (unlike the existing NPCI).
  • All NUEs must be compatible with the National Payments Corporation of India (NPCI).

Why need NUEs?

  • The NPCI is at the epicenter of the country’s digital payments.
  • The RBI has implemented NUEs in order to break NPCI’s monopoly.
  • The central bank also noted that during the pandemic, as people spent more time at home, the use of e-commerce increased, as did the incidence of internet fraud and cyber-crime.

Why NUE if NPCI is doing a good job?

  • The NPCI infrastructure processes 48% of all electronic retail payments in the country.
  • The RBI is concerned because so much of the country’s payment system is concentrated in one entity.

How will NUE assist customers?

  • Users’ payment options will expand with the introduction of NUEs.
  • As e-commerce expands and reaches deeper into India’s unbanked hinterland, this will increase competition and eventually help boost transaction volumes for both platforms.
  • According to the World Bank’s most recent report on financial inclusion, approximately 190 million Indians did not have a bank account and more than half did not make or receive digital payments in 2017.
  • Customers who are experiencing frequent server transactions as a result of server overload currently have few options.
  • They will be able to use the other platform under the new regime.

How about data security?

  • Compliance in terms of data security and privacy applies to everyone in the payments and banking industry.
  • Every entity involved in payments and settlements must adhere to the same set of guidelines.
  • RBI already has a new set of guidelines on “Regulation of Payment Aggregators and Payment Gateways”.
  • It ensures that neither authorized Payment Aggregators (PAs) nor merchants on-boarded by them can store customer card credentials in their database or server, thereby preventing data breaches and potential abuse.

Will NUEs replace NPCI?

  • To strengthen the payment infrastructure network, NUEs will coexist with NPCI.
  • A strong and resilient infrastructure is required to meet the government’s ambitious goal of one billion digital transactions per day.
  • NUEs will not replace, but rather supplement, NPCI in expanding India’s digital payment success story.
  • We can ensure that the system as a whole in our country evolves in the best traditions of digital infrastructure adopted anywhere in the world by establishing a neutral and independent standards-setting body.
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