Days after the Reserve Bank of India (RBI) released its concept paper on the new retail payment system, former managing director and chief executive of the National Payments Corp of India (NPCI) A.P. Hota said that the central bank should drive the initiative to set up a new NPCI instead of leaving it to the market. Edited excerpts:
What is your view on RBI’s policy statement on authorization of a new retail payment system?
The stated policy of RBI is to minimize concentration risk and promote innovation. The policy statement has also signalled the market that the RBI would like to have a few more pan-India payment platforms and payment system operators. My view is that, considering the challenges involved in building platforms such as the NPCI, RBI itself should have indicated that they would like to create one more NPCI-like set up, instead of the market having to do the deep thinking and guesswork. Platform companies are usually non-competitive and cater to the needs of member institutions, which in turn, compete on service level and pricing. A country cannot have a large number of platforms for the same services because it would neither be viable for platforms nor for the members to connect to all the platforms. Therefore, the agenda would have to be driven by the regulators. Concentration risk mitigation is the policy agenda of a regulator and not that of the service providers.
Do you think banks and non-banks are prepared to switch to the new NPCI?
The payments market in India has been growing exponentially. RuPay could make an entry even when all major banks had tied up with Visa and Mastercard. Banks may, in their own strategic interest, share a part of their business with the new NPCI. New modes of payments may also emerge due to innovation and competition. For example, the new NPCI may create a new type of settlement system for capital markets, which can provide greater liquidity and convenience to capital market participants. Bill payment market is still untapped. Transit payment system is still untapped. The new NPCI can play the role of a pension master for central and state governments. If banks can live with multiple credit bureaus, multiple rating agencies and multiple market infrastructures, addition of one more infrastructure would not be very difficult. Cost and complexity of technology connectivity is becoming affordable and simpler day by day. When the National Stock Exchange (NSE) was created, BSE felt threatened. But, over the years, both have grown by leaps and bounds.
What could be the functions of the new NPCI ?
RBI can ask NPCI to pay back, or NPCI itself can voluntarily pass on some activities to the new NPCI, so that both can grow together. Creating competing organization should not be the main objective. The driving force should be to share the load such that both can win. May be, NPCI can decide either to be a scheme player for RuPay and handover the NFS operations, or the reverse. Card schemes and card processors are usually different. The government may transfer the entire Aaadhar-based payments system from NPCI to this new NPCI. Aadhaar Mapper and Centralised Mandate Management Systems are utilities which would have to be commonly used by both NPCI and the new NPCI. They will have to work in partnership.
Would it be too costly to set up a new NPCI ?
Cost is not the main factor. The real challenge would be the willingness and interest of the banks to do one more technical integration in the midst of whole range of technology changes taking place in banks. Even now many banks are struggling to fulfil many regulatory requirements of resiliency technology system; because the solution providers have not completed their tasks.
Will the new NPCI see the light of the day?
I am quite positive that it would be a reality. If a couple of large banks and non-banks or consortium led by a few enterprising companies like BSE take the lead, I am sure, another NPCI like institution can be easily set up. One can imagine the volume of retail payment transactions when per capita GDP grows two to three times in next ten years. The payments system needs t be ready with the same. NPCI and new NPCI- both can succeed like BSE and NSE.