Fintech unicorns Pine Labs and BillDesk are also part of the consortium to set up a
‘New Umbrella Entity’ (NUE) that will build a unified payments interface (UPI)-like settlement system for small and medium enterprises, merchants and consumers, said the people cited above.
A proposal is likely to be presented to the Reserve Bank of India (RBI) before February 26—the deadline to submit bids for NUEs. These firms may have near-identical stake with slightly varying rights, they said.
“Our attempt is to create a world-class payments network which can reduce settlement time for small businesses and merchants,” a person directly involved in the plan said. “The discussions largely gained momentum over the last two months. All the requisite agreements and paperwork between players are in place.”
ICICI Bank, Axis Bank, Amazon, Pine Labs and BillDesk didn’t respond to ET’s emailed queries. A Visa spokesperson declined to comment.
The RBI had last August issued guidelines for creating for profit NUEs with an aim to foster competition and “derisk” India’s burgeoning digital payments ecosystem where much of the settlement burden has fallen on the non-profit NPCI over recent years.
International and domestic companies are competing for a bigger share of Indian payments market as digital transactions are growing by leaps and bounds. With the Chinese market almost shut for most global players, Google, Amazon, Facebook and Walmart are joining domestic financial institutions to grab a share of the pie.
Digital payments in India have been growing in both volume and value terms. It grew at an annual rate of 55% in the past five years. The pandemic has further accelerated the shift towards digital payments in the country led by adoption of first-time users.
“The rationale behind the partnership is also to maximise the synergies and bring India’s top private sector banks and fintech companies together with global players to create a settlement system that is not only faster but also more scalable to further the cause of digital payments in India,” another person said.
Axis and ICICI are among the leading banks processing UPI payments in India working with NPCI. While Visa has been a mainstay in processing digital payments in India through its card network, Amazon’s payment and wallet service on UPI is relatively new. The ecommerce giant processed 46 million of the 2.4 billion transactions on UPI network in January 2021, according to the latest data released by NPCI.
BillDesk has long been one of India’s top payment gateways competing with the likes of Naspers-backed PayU and CCAvenue. The payments unicorn also processes a major chunk of payments on NPCI’s instant bill payment platform BBPS. Mastercard-backed Pine Labs specialises as a merchant commerce platform in India and South East Asia.
The NUE framework allows any new consortium to launch an instant payment network that runs parallel to UPI. Banks and payment players have for long expressed concerns about UPI’s ability to scale up. By NPCI’s own admission, the government’s move to waive merchant discount rates (MDR) on UPI and RuPay in 2019 resulted in a Rs 2,000 crore loss to the industry.
“The waiver of MDR on UPI meant that banks and payment companies could no longer make profits from core payments business. The RBI has provided flexibility to NUEs to create their own business models which has appealed to several players who already have skin in the game,” said a source.
Consortiums led by Reliance Jio Infocomm and Tata Group are also learnt to be applying for NUE licences. A fintech industry grouping led by Infibeam Avenue and Yes Bank has also announced its intentions to apply. But the plan of State Bank of India to partner with HDFC appears to have been nixed by the finance ministry which doesn’t want state-owned banks to compete with NPCI.