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Contributed on September 1, 2020

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RBI releases Framework for authorisation of pan-India Umbrella Entity for Retail Payments

Blog: NASSCOM Official Blog

Context

On 10 February 2020, the Reserve Bank of India (RBI) released Draft Framework for authorisation of a pan-India New Umbrella Entity (NUE) for Retail Payment Systems. Such an entity shall be a Company incorporated in India under the Companies Act, 2013. The Company may be a ‘for-profit’ or a Section 8 Company as may be decided by it, RBI has said in a statement.

The NUE shall be a Company authorised by RBI under Section 4 of the Payment and Settlement Systems Act, 2007 (PSS Act), it said.

After deliberations on the comments / feedback received on the Draft Framework, the Central Bank on 18 August 2020 released the ‘framework for authorisation of pan-India Umbrella Entity for Retail Payments’. NASSCOM had also submitted its inputs to the RBI on the draft framework.

Applications for the umbrella entity can be submitted by 26 February 2021.

Major Highlights of the Framework

• Eligible Promoters & Shareholding

1. All entities eligible to apply as promoter / promoter group of the umbrella entity shall be owned and controlled by resident Indian citizens’ [as defined in the rules / regulations framed under the Foreign Exchange Management Act, 1999 (FEMA), as amended from time to time] with 3 years’ experience in the payments ecosystem as Payment System Operator (PSO) / Payment Service Provider (PSP) / Technology Service Provider (TSP).
2. The shareholding pattern shall be diversified. Any entity holding more than 25% of the paid-up capital of the umbrella entity shall be deemed to be a Promoter.

• Capital

1. The umbrella entity shall have a minimum paid-up capital of ₹500 crore.
2. No single Promoter / Promoter Group shall have more than 40% investment in the capital of the umbrella entity.
3. The Promoters / Promoter Groups shall upfront demonstrate capital contribution of not less than 10% i.e., ₹50 crore at the time of making an application for setting up of the umbrella entity. The balance capital shall be secured at the time of commencement of business / operations.
4. The Promoter / Promoter Group shareholding can be diluted to a minimum of 25% after 5 years of the commencement of business of the umbrella entity.
5. A minimum net-worth of ₹300 crore shall be maintained at all times.

• Scope of Activities

The scope of activities of the umbrella entity shall be as follows:

1. Set-up, manage and operate new payment system(s) in the retail space comprising of but not limited to ATMs, White Label PoS; Aadhaar based payments and remittance services; newer payment methods, standards and technologies; monitor related issues in the country and internationally; take care of developmental objectives like enhancement of awareness about the payment systems.
2. Operate clearing and settlement systems for participating banks and non-banks; identify and manage relevant risks such as settlement, credit, liquidity and operational and preserve the integrity of the system(s); monitor retail payment system developments and related issues in the country and internationally to avoid shocks, frauds and contagions that may adversely affect the system(s) and / or the economy in general.
3. Fulfil its policy objectives and ensure that principles of fairness, equity and competitive neutrality are applied in determining participation in the system; frame necessary rules and the related processes to ensure that the system is safe and sound, and that payments are exchanged efficiently.
4. Carry on any other business as suitable to further strengthen the retail payments ecosystem in the country. It is expected that the umbrella entity shall offer innovative payment systems to include hitherto excluded cross-sections of the society and which enhance access, customer convenience and safety and the same shall be distinct yet interoperable.
5. It is also expected to interact and be interoperable, to the extent possible, with the systems operated by NPCI.
6. The umbrella entity may be permitted to participate in Reserve Bank’s payment and settlement systems, including having a current account with Reserve Bank, if required.

• Business Plan

1. The application for setting up the umbrella entity shall contain a detailed business plan covering the payment system/s proposed to be set-up and / or operated along with other documents to duly establish its experience in the payments ecosystem.
2. Such plan shall, inter alia, include technology, security features, market analysis / research, benefit, if any, of such payment systems, operational structure of the payment systems, time-period for setting up the payment systems and proposed scale of operations, etc.
3. A proposed organisational strategy in terms of fulfilling its responsibility as an umbrella entity shall also be given in the business plan.
4. The umbrella entity shall commence business / operations within a time of 6 months, extendable to a maximum of one year, if required, from the date of ‘in-principle approval’.

• Procedure for Processing of Applications

1. The applications will be taken up for processing only after the last date of receipt of applications, in the order of their receipt at the Reserve Bank of India. Scrutiny of applications will be undertaken by an External Advisory Committee (EAC).
2. The EAC will submit its recommendations to the Reserve Bank. Board for Regulation and Supervision of Payment and Settlement Systems (BPSS), will be the final authority on issuing authorisation for setting up umbrella entity / entities.
3. Reserve Bank will complete the process within a period of six months.

Our Comments

The final framework has wider scope of activities of the NUE compared to the draft framework. RBI has included development of innovative payment systems aimed at improving access and customer convenience, as an activity of NUE. Such entities have also been permitted to participate in Reserve Bank’s payment and settlement systems, including having a current account with Reserve Bank, if required. However, the clear demarcation between the regulatory, monitoring and supervisory activities undertaken by the NUE has not been provided even in the final framework.

Please send your queries/comments on this framework to komal@nasscom.in.

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