January 12, 2024


Should the New Umbrella Entity (NUE) framework be revived?

The idea of a truly ‘cashless India’ seems like a long way away. It’s inextricably linked with ‘Digital India’ where people, at least a majority, make their transactions using digital payment methods and not cold hard cash. We’ve got the Unified Payment Interface (UPI) that has become very popular. Then there are the likes of Google Pay, PayTM, and the rest.

But what if they had some competition? The Reserve Bank of India (RBI) had plans for a New Umbrella Entity (NUE). It was an alternative digital payment system. The RBI seemed keen. It made sense, given the growing volume of digital transactions. However, some stakeholders weren’t convinced about its necessity. Inviting foreign companies was another no-no for some. Does the NUE deserve a second look?


Over the past decade, there has been something of a revolution in how Indians pay for things. More people have smartphones. More people have mobile and internet connectivity. With the introduction of digital payment systems, they’ve become part and parcel of people’s lives. Sure, quite a few still like the feel and security of cash, but the shift seems inevitable.

Apart from better banking facilities, one could argue UPI was where it really started. Developed by the National Payments Corporation of India (NPCI), UPI has become the backbone of digital transactions. Before demonetisation, only 10% of all transactions were digital payments.

The government puts its foot on the accelerator with Digital India, Make in India, and Startup India. It wanted to increase the volume of digital transactions and technology across several sectors while allowing startups to flourish. All to ensure digital payments become second nature for most people.

Once the dust had settled, companies saw an opportunity. E-wallets, e-commerce platforms, and companies like PhonePe, Paytm, and Google (GPay) all staked their claim in the digital payments ecosystem. It worked. They’ve been quite successful to varying degrees and the pandemic certainly helped. All of this led to India recording 89.5 million digital transactions in 2022 and accounted for 46% of global real-time payments in 2022.

One entity that has played a crucial role in this journey is the RBI. The NPCI was jointly formed by the RBI and the Indian Banks’ Association in 2006. The goal was to be an umbrella organisation for digital retail payments.

A few years ago, the RBI released guidelines that allowed NPCI-like entities for retail digital payments, called New Umbrella Entities (NUE). They’re similar to UPI in that they’re digital payment systems. However, the platform would mostly be for-profit and allowed to charge fees for transactions, unlike the existing system. The RBI’s guidelines stated that these payment systems could offer payment services like wallet transactions, Aadhaar-based payments, and remittances.

So far, nothing’s come of it. The RBI scrapped plans after bids from companies didn’t provide anything innovative, according to the central bank. Should the NUE be revived? Does India need another digital payment system entity?

VIEW: NUE is a great opportunity

In 2020, the RBI said the NCPI’s share in the payment ecosystem was 64.5% by volume and 4.07% by value. The central bank said there needed to be more competition in this space. It’s not really a good idea for payment systems to be concentrated within the same entity. There are operational risks, minimal room for innovation, and monopolistic tendencies. If payment apps like PhonePe and Paytm fail, things could get dire.

The idea behind the NUE was to reduce the burden on the NPCI. It would manage and operate new retail payment systems. What this does is give people more options and bring more people into the digital payments ecosystem. What the NUE would do is ensure there’s no concentration of payments to a handful. Google Pay, PhonePe, and Paytm have a majority of that pie.

An NUE wouldn’t replace the NPCI. They would work on parallel tracks to create seamless solutions for peer-to-peer and merchant payments. Like how the NPCI runs the UPI, the NUE would have its own framework and systems used later by banks and fintech companies. Also, there are markets for the taking for NUEs – tier-2 and tier-3 cities which still depend on cash.

COUNTERVIEW: Is it really necessary?

When the RBI announced its decision for NUEs, companies like Facebook, Amazon, Tata, and Reliance queued up. An important aspect of the NUE plan was for them to operate as for-profit entities. The NPCI is registered as a non-profit. This was always a concern from the beginning. If Reliance Jio and the State Bank of India (SBI) decided to join forces for an NUE, they could have the upper hand given their pan-Indian presence.

There are also concerns about data security and privacy since foreign private companies would’ve been involved. Part of this was the basis for strong opposition from the All India State Bank of India (SBI) Staff Federation and the UNI Global Union. They sent a letter to the RBI asking them to scrap the NUE licensing process and instead focus on strengthening the NPCI. They weren’t happy with the participation of foreign for-profit companies that would’ve had access to user data. Mastercard’s non-compliance with local data storage rules didn’t help matters.

What the RBI has done with the NPCI is set up a modern payment system that’s owned in India and controlled by Indian regulators. There’s a scenario where foreign private companies come in, offer low initial prices, squeeze out NPCI and then raise prices once they’ve got a foothold. The point of having the NPCI as a non-profit is players can innovate on the same infrastructure at low costs.

Reference Links:

  • The Digital Payment Revolution: Paving the Way for India’s Financial Independence – The Economic Times
  • Digital Payments driving the growth of Digital Economy – National Informatics Centre
  • New Umbrella Entities: An Umbrella of Opportunities for India – Nickle and Dimed
  • New umbrella entities explained: Why India has delayed their retail payment systems – Financial Express
  • No innovative or infrastructural solutions received in NUE applications: RBI Deputy Governor – MediaNama
  • SBI union, others urge Indian bank to scrap digital payments plan-letter – Reuters
  • What Is New Umbrella Entity & Why Are Bank Unions Opposing It? – The Quint
  • Digital Payments: Do We Really Need New Umbrella Entities? – CXO Today

What is your opinion on this?
(Only subscribers can participate in polls)

a) The New Umbrella Entity (NUE) framework should be revived.

b) The New Umbrella Entity (NUE) framework shouldn’t be revived.


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