With the New Umbrella Entity, safety will be the top priority; PSBs behind pvt banks on tech, shouldn’t be barred from participating
RBI appears to be taking its time to evaluate the many applications for a New Umbrella Entity (NUE) licence. Given the systemic importance of such an entity, it is understandable the central bank would like to be thorough in its scrutiny of the half a dozen or so consortiums that have entered the fray. Indeed, the committee set up to evaluate the applications cannot be hurried to complete its task because financial stability can’t be compromised. Moreover, there are serious issues that need to be studied. The first, of course, is the all-important matter of data security—and even storage—since some of the contenders are believed to be foreign players. RBI’s views on data-storage are well-known; it insists all data be stored locally though it permits data to be sent out of the country for a specific period if it needs to be processed elsewhere.
Given how some of the credit-card issuers—Mastercard and American Express—failed to comply with the rules, the central bank would be justifiable concerned. Again, that the new NUEs would be profit-making businesses, whereas the National Payments Corporation of India (NPCI) is a not-for- profit organisation, creates some kind of conflict since both are essentially providing the infrastructure for a public good or a payments platform.
While the government has asked the public sector lenders not to bid for an NUE licence given they are shareholders in NPCI—SBI is believed to have pulled out of one of the consortiums for this reason—it is possible there has been a rethink on this issue. If so, it would be encouraging news. If it is indeed the government’s endeavour to promote digitisation and also encourage technological innovation, there is no reason for debarring PSBs from participating. By teaming up with world-class players, they could leapfrog to the next level of technology that is necessary for them to remain relevant. The argument that these lenders would not continue to support NPCI if they forged new alliances is a weak one.
NPCI has done tremendous work—the UPI has turned out to be an excellent platform—and there is no reason state-owned lenders would not want to continue to pull their weight. Depriving PSBs of the opportunity to gain market share in the world’s most exciting retail digital market is unfair to them and to taxpayers. Again, it is not simply about market share or money, it is about staying abreast of the competition in a rapidly -progressing technological environment, about the learnings. We must acknowledge most of our PSBs are way behind their private sector peers when it comes to digital banking. The frontline private sector lenders claim at least 25-30% of the business is now driven by their proprietary platforms and partnerships with fintech firms and even SBI cannot afford to remain complacent. Indeed, given the reach that the state-owned banks have in the hinterland, it makes sense for them to become digitally more proficient and to participate in the innovation. The government must allow them to bid for an NUE.
Even as NPCI continues to scale new peaks—UPI transactions crossed 3.5 billion in August—competition in the retail payments space would help further innovation. Hopefully, the regulator will find at least one or two contenders worthy of an NUE licence. But its top and only priority must be safety.