The Reserve Bank of India has halted plans for a high-profile project aimed at competing with the country’s dominant payment system, the Unified Payments Interface. A number of major conglomerates, tech titans, and financial institutions, including Amazon, Reliance, Facebook, Tata Group, Google, HDFC, and ICICI, had expressed interest in the project.
In 2021, the Reserve Bank of India invited bids for licences to operate new retail payment and settlement systems across India. The project was known as New Umbrella Entity (NUE).
However, the project’s potential participants failed to propose “any innovative or infrastructural solutions,” according to RBI Deputy Governor T Rabi Sankar. Sankar emphasised the central bank’s desire to investigate ideas that go beyond incremental improvements or replacements for existing technologies.
UPI, which now processes over 8 billion transactions per month, was getting closer to reaching the 1 billion transaction mark in 2021. As UPI’s importance in the economy grew, the central bank sought to mitigate concentration risk by developing an alternative protocol that would relieve strain on the existing system.
In 2021, PhonePe and Google Pay had the largest market share in UPI — not much has changed — and many industry participants saw NUE as a way to be early and aggressive with a new payments system.
In an earlier proposal, the RBI sought interoperability of NUEs.
“As a result, NUEs have no proprietary access.” NUEs, on the other hand, can tailor the networks to their specific business model and distribution capabilities. If a conglomerate has a strong e-commerce presence, the NUE could be tailored to the specific needs of that use-case. For new players, UPI has market share caps and calibrated growth (e.g. WhatsApp). NUEs would be free of such constraints and could aid in the acceleration of network effects for private players. Thus, customised NUE design and self-governance may provide enhanced capabilities. NUEs will have customised networks based on use-cases, as opposed to UPI’s generic payment network.” Bernstein stated in a report.
