Scoop: Reliance partners Google, Facebook in seeking NUE licence from RBI

Mumbai:

According to senior industry executives, the RBI is not expected to give more than two NUE licences. Foreign investments along with competition and data ownership risks will also be evaluated by external regulatory authorities, including the Competition Commission of India (CCI), said the people cited above. RBI will also check for any Foreign Exchange Management Act (FEMA) violations.

ET has reported that consortiums led by ICICI Bank and Amazon, as well as Paytm with IndusInd Bank have also applied for NUE licences this week. A fourth consortium led by Tata Group along with HDFC Bank and Kotak Mahindra Bank is also in the fray, ET has learnt.

An NUE licence can help the entity gain greater autonomy in processing digital payments in India. That will help establish a firm presence in the financial services ecosystem through value-added lending and insurance services, said senior industry sources.

While Google’s Google Pay platform and Facebook-owned WhatsApp’s payment service are live on UPI, these platforms are treated by Indian laws as intermediaries or third-party players rather than a licensed payment system operators. Infibeam Avenues, expected to be a co-promoter in the entity, is a BSE-listed financial entity with a market cap of Rs 6,000 crore. The company operates the payment gateway CCAvenue and has tieups with all major consumer brands.

Stakes in a licensed NUE will provide the US-based giants a seat at the table with Indian regulators and policymakers in shaping the digital payments landscape, which has grown exponentially in recent years.

“This is the perfect dynamics working out—Reliance Jio wants to expand its partnership further with Google and Facebook (WhatsApp Pay) and the foreign partners would like to get a larger share of India’s burgeoning retail payments market,” said an executive involved in the deal. “As per the plan, Reliance will hold a lion’s share in the venture, with Google and Facebook holding less than 20% each.”

According to a study by the Ministry of Electronics and Information Technology (MeitY), India’s digital economy was valued at $200 billion, or 8% of the gross domestic product in 2018, and is expected to swell to 18-23% of the GDP by 2025. India is the second-fastest growing country based on digital adoption in the recent past, although it is still low in absolute rankings. The RBI expects more NUE payment networks will help bolster digital adoption.

Google Pay continued its growth on the UPI platform but slipped to second place in December, losing out to Walmart’s PhonePe. In January, the app processed 853 million transactions worth Rs 1.77 lakh crore. WhatsApp processed 46.3 million transactions with a value of Rs 36.44 crore while Jio Payments Bank processed 0.41 million transactions worth Rs 27.91 crore.

NPCI-operated UPI, meanwhile, cemented its credentials as one of the fastest-growing, real-time payment networks in the world by clocking a record 2.3 billion transactions worth Rs 4.3 lakh crore in January.

Surya told ET in November that So Hum Bharat will seek to create payment networks that can establish “entirely new payment use-cases.” “In terms of innovation in the entire payments ecosystem, currently we have just four or five products and there are variations to it,” Surya, also the chairman emeritus of Payment Council of India (PCI), had said at the time. “The idea is to innovate and create products that become a part of the use case process and that are invisible.”

The RBI had in August issued guidelines for corporates to create 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.

According to the rules, no single promoter can have a stake of more than 40%, which then has to be brought down to less than 25% in five years of operation. The entity also needs a paid-up capital of Rs 500 crore to get the RBI’s nod.

In the past decade, the non-profit payments entity has developed the country's key retail payment railroads including UPI, the Immediate Payments System (IMPS), RuPay and the National Financial Switch (NFS). It’s also credited with powering the direct benefit transfer (DBT) architecture that supports the government’s Pradhan Mantri Jan Dhan Yojana.

 Reliance Industries Ltd. has partnered Google and Facebook Inc. to set up a New Umbrella Entity (NUE) that will allow them to create a payments network similar to the Unified Payments Interface (UPI) to gain a share of India’s burgeoning digital payments market.
ET was the first to report on April 29 and then on November 11 the interest of Reliance, Google and Facebook in coming together to set up a payments entity under the NUE framework.

The RBI is expected to take another six months to study the proposal along with other bids.

The central bank said on Friday that the deadline to submit applications had been extended to March 31, following a plea by the Indian Banks’ Association. ET had reported on February 19 that the regulator may consider extending the deadline, keeping in mind pandemic-related disruptions.

“A proposal will be presented to the Reserve Bank of India on detailing the consortium’s plan to strengthen India’s digital economy,” said one of the people with knowledge of the matter. “Representatives of these companies have been in talks with the central bank over the past few months to ensure compliance ahead of the formal presentation of the bid.”
The NUE will be jointly promoted by a Reliance unit and Infibeam Avenues Ltd.'s subsidiary So Hum Bharat. Facebook and Google will hold smaller stakes. The companies are in advanced stages of submitting their proposal to the RBI, three people with knowledge of the matter told The Economic Times.