India’s central bank has halted plans for a high-profile project aimed at rivaling the nation’s dominant payment system, the Unified Payments Interface. The project had attracted significant interest from a variety of major conglomerates, tech giants, and financial institutions, including Amazon, Reliance, Facebook, Tata Group, Google, HDFC, and ICICI.
The Reserve Bank of India had initially invited bids in 2021 for licenses to operate new retail payment and settlement systems across India. The project was called the New Umbrella Entity, or NUE.
However, according to RBI Deputy Governor T Rabi Sankar, potential project participants did not propose “any innovative or infrastructural solutions”. Sankar stressed the central bank’s interest in exploring ideas that go beyond incremental improvements or replacements of existing technologies.
UPI, which now processes more than 8 billion transactions a month, was inching closer to the 1 billion milestone in 2021. The central bank sought to mitigate concentration risk as UPI’s importance in the economy continued to grow, with the aim of developing an alternative protocol that would alleviate tension in the existing system.
Industry players had formed four consortia and planned to bid for the NUE license. Image: Bernstein
PhonePe and Google Pay had the largest market share in UPI in 2021, 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, RBI sought to make NUEs interoperable with each other.
“Therefore, NUEs do not have any ownership access. However, NUEs can customize networks based on their business model and distribution capabilities. If a conglomerate is strong in e-commerce, the NUE could be customized to the specific needs of that use case. UPI has calibrated growth/market share caps for new players (eg WhatsApp). NUEs would have no such restrictions and could help with accelerated network effects for private players. Therefore, custom design and self-governance of NUEs could provide stronger capabilities. Unlike the generic UPI payment network, NUEs will have custom networks based on use cases,” Bernstein wrote in a report in 2021.
