RBI: SBI plans foray into digital payments, set to rival National Payments Corporation of India


State Bank of India is planning to set up an entity to rival National Payments Corporation of India (NPCI) and enter the country’s highly competitive, yet fast-growing, digital payments ecosystem as a primary stakeholder.

The senior management of India’s largest lender has held preliminary discussions and is “examining” the possibility of applying for a licence under the Reserve Bank of India’s New Umbrella Entity (NUE) framework for retail payments, an SBI official told ET.

The framework for the NUE was released by the Reserve Bank of India last week, with the central bank also opening the window for applications. Entities receiving approval can set up a payments company for owning and operating a pan-India digital payments network, exercising the same powers as NPCI.

Confirming the development, an SBI spokesperson told ET that the lender is “examining the framework” as the bank could leverage its scale, customer base and existing capabilities to offer new digital services.

“The framework is also being examined by SBI, as the presence of an additional entity may lead to further deepening of the digital retail payments ecosystem,” the spokesperson said.

“This will further increase the reach and expanse of financial inclusion, since many more innovative and affordable products will be made available on this platform,” the SBI spokesperson said.

While the talks are at a nascent stage, one of the ways the new payments entity could be structured is through a combined ownership-based model where SBI, as a promoter, could invite other state-owned banks to form a consortium, said a person aware of the matter.

Another possibility could be SBI partnering with fintech companies which could help the state-owned lender offer some of its digital initiatives through its banking channel, said the person.

SBI will need to provide at least Rs 500 crore as paid-up capital if the entity does get the green light, as per the RBI guidelines.

The new entity, as envisaged by RBI, would help in achieving one of its stated objectives of democratising and “derisking” India’s burgeoning retail payments landscape. The NPCI currently controls over 60% of the volumes through crucial channels such as the Unified Payments Interface, Immediate Payment System and National Financial Switch.

The RBI has set February 2021 as the deadline for interested entities to submit applications. The central bank hopes to finish the process of scrutinising the applications in another six months.

SBI

Stiff competition

ET had reported in its April 26 edition that corporates including Reliance Industries, Paytm, National Stock Exchange and the BSE are exploring the possibility of applying for the coveted licence.

SBI is already a shareholder in the NPCI, which is a ‘not-for-profit’ entity registered under Section 8 of the Companies Act and owned by a consortium of leading public and private sector banks.

The SBI-owned entity, however, would likely be a ‘for-profit’ company.

The scope of the approved entity, according to the RBI’s framework, includes “setting up and operating new payment systems” comprising ATM networks, point-of-sale services, Aadhaar-based payment systems and remittances. However, the entity’s systems must be interoperable with the NPCI’s existing payment networks.

SBI’s operational and business plans for its proposed payments company are yet to be ascertained.

The public sector lender plays a key role in India’s digital payments and financial inclusion mandate. As of June 2020, the bank had 123.9 million Pradhan Mantri Jan Dhan accounts — the highest among all banks. It handled 1,059 million UPI transactions and 26% of all remittance transfers on the app during the June quarter. Additionally, SBI has 58,582 ATMs, 62,000 business correspondents and nearly a million Aadhaar-based touch points, as per its latest investor presentation.





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