Hey- Shreyans here. I hope you’re safe and healthy.
For the past 2 weeks, I've been seeing news about something called an NUE. What caught my attention were the big names behind it- Google, Facebook, Jio, Tata, Amazon, and more. News headlines were screaming "The end of UPI" and "RBI is coming for UPI". This got me curious about the whole NUE thing, and how exactly is it related to UPI. And where exactly do these tech companies come into the picture? Let's find out!
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🕹A Brief about NPCI:
The story starts in December 2008, when RBI gave its blessing to the National Payments Council of India(NPCI). 10 of the biggest banks in India- SBI, PNB, ICICI, HDFC, Citibank, BoB, and more were part of NPCI. By 2016, there were more than 50 banks in NPCI. The idea was simple- to operate NPCI as a non-profit organization, and develop products to improve India’s fintech sector.
Over the years, NPCI has released many financial products to achieve digitization of the sector:
UPI: NPCI’s biggest project ever. It allowed people to send money to each other and businesses through a simple ID.
RuPay: India’s own payment gateway system to compete with Visa and Mastercard’s dominance.
Bharat BillPay: The one-stop solution to pay all the bills- electricity, gas, DTH, etc
And many more products like BHIM, AePS, NFS, IMPS, etc.
If you think about it, it’s pretty amazing that one non-profit organization has done so much great stuff. I remember reading about these products for the first time, and I was filled up with pride at how advanced our country’s finance space has become since 2008.
Sadly, this is where the problem starts…
🕹The Problems with UPI:
As the number of products under NPCI’s belt increased, so did its influence on India’s finance space. This got the RBI worried. They were particularly worried about UPI, and how everyone depended on it to make digital transactions.
On March 5th, 2020, RBI placed Yes Bank under a moratorium. PhonePe shut down for the next 24 hours since it depended entirely on Yes Bank. BharatPe also faced temporary problems because of the Yes Bank crisis. This exposed a problem in UPI: it depends heavily on banks.
As the number of people who came online increased, so did the number of UPI transactions. RBI was unsure whether NPCI’s infrastructure would be able to handle this increased traffic.
There was also the issue of competition: UPI was the only player in the digital payments sector. If a sector has no competition, it is generally bad for the consumers.
No competition, infrastructure problems, and over-reliant on banks- these are the 3 problems facing the current UPI system.
🕹The Solution: NUE
On August 18th, 2020, RBI released its one-shot solution to the 3 UPI problems- Framework for authorisation of pan-India Umbrella Entity for Retail Payments
Here’s the short story:
The RBI has asked private companies and banks to form teams. So far, there are 4 teams.
Team Jio: Jio + Google + Facebook
Team Amazon: Amazon + ICICI Bank + Axis Bank + Visa
Team Tata: Tata Group + HDFC Bank + Kotak Mahindra Bank + Airtel + MasterCard
Team PayTM: Paytm + Ola + IndusInd Bank
(Note that these teams are not confirmed by the companies, but major newspapers have reported this data)
Out of the 4, RBI will approve 2 teams. These 2 teams will then be given the NUE(New Umbrella Entity) license. Having the NUE license means these companies can build alternatives to UPI. This is the whole purpose of NUE- competing with UPI and providing alternatives to consumers.
🕹Benefits of NUE:
Benefit for RBI: More competition in the digital payments sector, no risk of monopoly
Benefit for people: Different alternatives for payments, better service
Benefit for the tech companies: 2 benefits-
The current payment apps like GPay are built on top of UPI. But they don’t have access to the underlying tech infrastructure. For NUE, they will be building the entire infrastructure themselves, so they will have full access to it.
The RBI has allowed these companies to operate their NUE as a for-profit. So, they can charge fees for transactions.
Benefit for NPCI: nothing lol
If you read it till the end, congratulations! You have understood the whole concept of NUE- its history, its need, and its benefits. I read a lot of articles on the internet about NUEs, but no article explained it in detail. So I decided to write it myself, and share it with you people. I hope you enjoyed reading it. Please share it with your friends, I’m sure they will also benefit from knowing about this important concept.
Bye-bye and enjoy your Sunday! See you next week with yet another story about technology.