India’s central banking abandons UPI rival project

India’s central bank has stopped plans for a prominent project that would have challenged the country’s dominant payment system, Unified Payments Interface. This project attracted significant interest from a number of tech giants and financial institutions including Amazon, Reliance and Facebook, Tata Group and Google, HDFC and ICICI.

Initially, the Reserve Bank of India was invited bids in 2021 India for new retail payment and settlement system licenses. The project was called New Umbrella Entity or NUE.

T Rabi Sankar the RBI Deputy Governor stated that potential participants in the project did not propose any “innovative or infrastructural solution”. Sankar highlighted the central bank’s willingness to explore ideas that go beyond incremental improvements and substitutes for existing technologies.

UPI now processes over 8 billion transactions a monthIn 2021, the milestone of 1 billion was nearing. As UPI’s role in the economy grew, the central banking sought to minimize concentration risk. It developed an alternative protocol that would reduce strain on the existing system.

Four consortia were formed by industry leaders and they planned to submit a bid for NUE licensing. Image: Bernstein

PhonePe, Google Pay and Google Pay had the highest market share in UPI in 2021. Not much has changed. However, many industry participants saw NUE to be a way for them to be aggressive with a new system of payments.

In an earlier proposal, RBI wanted NUEs to interoperable.

NUEs don’t have exclusive access. NUEs have the ability to customize their networks to fit their distribution and business models. The NUE can tailor the networks to specific use cases if a conglomerate has a strong track record in e-commerce. UPI can limit market share/calibrated growth to new players (e.g. WhatsApp). These restrictions would not apply to NUEs, which could allow for faster network effects for private parties. NUEs could have stronger capabilities due to their customized design and self governance. Bernstein stated that NUEs will not have a generic payment network like UPI, but they will have customized networks based upon use-cases in a report published in 2021.

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