New Umbrella Entity (NUE)

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Context:

• The Reserve Bank of India (RBI) has put on hold the issuance of licences for the New Umbrella Entity (NUE) network.

Background:

Current System

• At present, Digital transactions are processed by the National Payments Corporation of India.
• NPCI single-handedly handles billions of online retails transactions.

Issue

• As the traffic builds, it’s getting riskier to depend on one system. There’s been a rising incidence of internet fraud, cyber-crimes and transactions that got reversed or declined, including at top banks and NPCI.
• To address the “risk concentration" of only one platform and offer consumers more options, the Reserve Bank of India in 2020 invited private companies to bid for a license to set up a new platform – NUE.
• Reducing the dominance of the National Payments Corporation of India (NPCI) is the RBI’s objective.

NUEs:

• NUE was supposed to be a non-profit entity that will set-up, manage and operate new payment systems, especially in the retail space such as ATMs, white-label PoS; Aadhaar-based payments and remittance services.
• NUE was supposed to develop new payment methods, standards and technologies as well as operate clearing and settlement systems.
• Further, it was supposed to manage clearing and settlement systems for participating banks and non-banks. It was supposed to monitor developments in the retail payment system and related issues, both in India and abroad, in order to avoid shocks.

RBI’s framework for the NUE

• The entities were required to have a minimum paid-up capital of INR 500 Cr to support/ address the need of capital for managing risks, invest in technological infrastructure, and for business operations, among others. 
• No single promoter/ promoter group could have more than 40% investment in the capital of the NUE.
• The promoter/ promoter group shareholding was also mandated to be diluted to a minimum of 25% after 5 years of the commencement of business of the NUE.

RBI’s non-issuance of licenses of NUEs:

• NUE was a good alternative to the NPCI and needed in a large market like India, but given the success and popularity of the NPCI it is a difficult proposition to push through.
• RBI had earlier put its plans to allow private establishments to create alternative digital payment platforms. But it has been put on hold owing to data safety concerns.

Read: Data Safety

https://www.iasgyan.in/daily-current-affairs/data-protection-bill

https://www.iasgyan.in/daily-current-affairs/data-localization-45