India’s central bank has halted plans for a massive project to rival the country’s dominant payment system, Unified Payments Interface. The project had attracted considerable interest from various major conglomerates, tech giants and financial institutions, including Amazon, Reliance, Facebook, Tata Group, Google, HDFC and ICICI.
The Reserve Bank of India had initially tenders in 2021 to obtain licenses to operate new retail payment and settlement systems across India. The project was called New Umbrella Entity, or NUE.
However, according to RBI Deputy Governor T Rabi Sankar, potential participants in the project did not come up with “any innovative or infrastructural solution”. Sankar stressed the central bank’s interest in exploring ideas that go beyond incremental improvements or substitutes for existing technologies.
UPI, which now processes more than 8 billion transactions per monthwas gradually approaching the billion mark in 2021. The central bank sought to mitigate concentration risk as the importance of IPU in the economy continued to grow, with the goal of developing an alternative protocol that would alleviate pressure on the existing system.
Industry players had formed four consortia and planned to bid for the NUE license. Image: Bernstein
PhonePe and Google Pay held the largest market share in UPI in 2021 – not much has changed – and many industry players saw NUE as a way to be early and aggressive with a new payment system.
In an earlier proposal, RBI sought to make NUEs interoperable with each other.
“So NUE has no proprietary 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 adapt to the specific needs of that use case. UPI has market share/calibrated growth caps for new players (e.g. WhatsApp). NUEs would have no such restrictions and could help accelerate network effects for private actors. Thus, the custom design and self-governance of NUEs could provide stronger capabilities. Unlike UPI’s generic payment network, NUEs will have custom networks based on use cases,” Bernstein wrote in a report in 2021.