The Covid-19 pandemic has had a major impact on the adoption and growth of digital payments across the globe. India demonstrates a robust digital payments landscape and has become a case study across several developed economies and major central banks. Amidst the Covid upheaval as well, the growth trajectory of India’s digital payments ecosystem has been exponential, with over INR 5 lakh crore UPI transactions in value just for the month of March 2021 alone. In order to further boost the digital payments ecosystem in India, the Reserve Bank of India (“RBI”) released a framework in August 2020 for setting up pan-India umbrella entity/ entities focusing on retail payment systems, and invited applications for the same.

What are NUEs?

Under the RBI framework, New Umbrella Entities (“NUEs”) are entities that can operate in the retail payment space and can be set up as either for-profit companies or not-for-profit companies. The scope of activities that can be undertaken by these entities has been outlined by the RBI, some of which include:

• • Setting up, managing, and operating new payment system(s) in the retail space comprising of but not limited to ATMs, White Label PoS, etc.
• • Operating clearing and settlement systems for participating banks and non-banks.
• • Monitoring retail payment system developments and related issues in India and internationally to avoid shocks, frauds and contagions.
• • Offering innovative payment systems to include excluded cross-sections of the society.
• • Developing payment systems that should be interoperable with the systems operated by NPCI, to the extent possible.

Who can set up NUEs?

Entities owned and controlled by resident Indian citizens with 3 years’ experience in the payments ecosystem as Payment System Operator (PSO) / Payment Service Provider (PSP) / Technology Service Provider (TSP) are eligible to be promoters of NUEs. The NUE can be incorporated as a for-profit or a not-for-profit company under the Companies Act, 2013 and will receive authorization from the RBI under the Payment and Settlement Systems Act, 2007. The minimum paid-up capital for setting up of the NUE is INR 500 crore and the promoters will be required to shell out upfront capital contribution of 10% i.e., INR 50 crore at the time of making an application for setting up of the NUE. The balance capital is to be secured at the time of commencement of business operations. The promoters have the option to dilute their shareholding to a minimum of 25% after 5 years of the commencement of business. However, a minimum net worth of INR 300 crore is to be always maintained by the NUE. The NUE will be required to commence business operations within 6 months (extendable to 1 year) from the date of in-principal approval by the RBI These proposals will be scrutinized by an External Advisory Committee, which will then submit its recommendations to the RBI. The RBI intends to complete this process within six months. As of now, the RBI has not indicated the number of in-principal approvals it plans on granting for setting up of NUEs.

Keeping in mind the current need of the hour – adoption and expansion of digital payments acceptance infrastructure, this step taken by the RBI can definitely be seen as an attempt to invigorate the digital payment ecosystem and carries the potential to revolutionize the Indian digital payments landscape.