RBI Scraps UPI Rival Plans

The Reserve Bank of India (RBI) has put an end to its ambitious project, known as the New Umbrella Entity (NUE), which was intended to challenge the country's predominant payment system, the Unified Payments Interface (UPI). The NUE project had garnered considerable attention from a range of major conglomerates, tech titans, and financial institutions, including Amazon, Reliance, Facebook, Tata Group, Google, HDFC, and ICICI.

Back in 2021, the RBI had invited bids for licenses to operate new retail payment and settlement systems throughout India under the NUE project. However, RBI Deputy Governor T Rabi Sankar recently revealed that the project's potential participants failed to suggest any innovative or infrastructural solutions. Sankar stressed the central bank's interest in exploring ideas that surpass incremental improvements or replacements for current technologies.

UPI has been experiencing rapid growth, now processing over 8 billion transactions monthly, while approaching the 1 billion milestone in 2021. The central bank aimed to address concentration risk due to UPI's increasing importance in the economy by developing an alternative protocol that could alleviate pressure on the existing system.

In 2021, PhonePe and Google Pay held the most significant market share in UPI, a situation that remains largely unchanged. Many industry players saw the NUE project as an opportunity to make an early and aggressive move into a new payment system.

RBI had initially proposed that NUEs be interoperable with one another. "Thus, NUEs do not have any proprietary access. However, NUEs can customize the networks to their business model and distribution capabilities. If a conglomerate is strong in e-commerce, the NUE could customize to the specific needs of that use-case. UPI has market share caps/calibrated growth for new players (e.g., WhatsApp). NUEs would not have such restrictions and might help with accelerated network effects for private players. Thus, NUEs customized design and self-governance could provide stronger capabilities. Unlike UPI's generic payment network, NUEs will have customized networks based on use-cases," wrote Bernstein in a report in 2021.

Despite the significant interest generated by the NUE project, the lack of innovative proposals and infrastructural solutions led to the RBI's decision to abandon the initiative. As a result, the UPI payment system will continue to dominate the Indian digital payment landscape without any immediate challengers.

While the RBI's decision might come as a disappointment to some industry participants who saw the NUE project as a golden opportunity, it highlights the central bank's commitment to nurturing innovation in the digital payment sector. It remains to be seen whether the RBI will consider reviving the NUE project in the future or explore alternative approaches to support the growth and evolution of India's digital payment ecosystem.

For now, the RBI's focus will likely remain on ensuring the stability and security of the existing UPI payment system, given its significant role in India's economy. Meanwhile, private players and financial institutions will need to seek other avenues to enter or expand their presence in the digital payment market.