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, said RBI 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). According to the Central Bank, the provisions of the PSS Act and other relevant statutes and directives, prudential regulations and other guidelines / instructions shall govern it.
The Reserve Bank has invited comments on the draft framework from all stakeholders by February 25, 2020.
Major Highlights of the NUE
- Eligible Promoters & Shareholding
The entity eligible to apply as promoter / promoter group for the NUE shall be ‘owned and controlled by residents’ [as defined in FEMA Regulations, 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). The shareholding pattern shall be diversified. Any entity holding more than 25% of the paid-up capital of the NUE shall be deemed to be a Promoter.
- Memorandum of Association (MOA)
The MOA of the applicant entity must cover the proposed activities of operating a pan-India NUE for retail payment systems.
The NUE shall have a minimum paid-up capital of ₹500 crore (to support / address the need of capital for managing risks, invest in technological infrastructure, for business operations, etc.). No single promoter / promoter group shall have more than 40% investment in the capital of the NUE. The promoters 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 NUE. The promoter / promoter group shareholding shall be diluted to a minimum of 25% after 5 years of the commencement of business of the NUE. A minimum net-worth of ₹300 crore shall be maintained at all times.
- Scope of Activities
The scope of activities of the NUE shall be, inter alia, to:
- Set-up, manage and operate new payment system(s) especially in the retail space comprising of but not limited to ATMs, White Label PoS; Aadhaar based payments and remittance services; develop new 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.
- Operate clearing and settlement systems; 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.
- 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.
- Carry on any other business as suitable to further strengthen the retail payments ecosystem in the country.
- Governance Structure
The NUE shall conform to the norms of corporate governance along with ‘fit and proper’ criteria for persons to be appointed on its Board. The Reserve Bank retains the right to approve the appointment of Directors as also to nominate a member on the Board of the NUE.
- Business Plan
- The application for setting up the NUE 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.
- 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. A proposed organisational strategy in terms of fulfilling its responsibility as an umbrella entity shall also be given in the business plan.
- Foreign Investment
In case of any Foreign Direct Investment (FDI) / Foreign Portfolio Investment (FPI) / Foreign Institutional Investment (FII) in the applicant entity, additional capital requirements as applicable under the extant Consolidated FDI policy guidelines of the Government of India needs to be fulfilled. After which, an application of authorisation, necessary approval from the competent authority as required under the policy notified by the Department of Industrial Policy and Promotion (DIPP) under the consolidated policy on FDI and regulations framed under the Foreign Exchange Management Act (FEMA) will have to be submitted.
- Procedure for Application
The application shall be submitted in an envelope superscribed “Application for New Umbrella Entity (NUE)”, addressed to the Chief General Manager, Department of Payment and Settlement Systems, Central Office, Reserve Bank of India, 14th Floor, Central Office Building, Shahid Bhagat Singh Marg, Mumbai – 400 001 and shall be submitted in the prescribed form (Form A) till the close of business hours after three months from the date of the Press Release.
- Procedure for Processing of Applications
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). 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 NUE. Reserve Bank will endeavour to complete the process within a period of six months.
NASSCOM is inviting comments from our members and other stakeholders in order to make a timely submission to RBI on this matter. Please submit your inputs to firstname.lastname@example.org by 20 February 2020 (Thursday).