The payment ecosystem has grown massively in the last decade due to RBI, NPCI, Banks, Fintechs, and the entire ecosystem. Banks have invested heavily in infrastructure and technology to support payment products, including RTGS, NEFT, UPI, IMPS, AEPS, BBPS, etc. This has improved the life of retail customers, with multiple options being available at low costs. However, most smaller banks have not been able to make payment business profitable. RBI has now come up with New Umbrella Entity(NUE) for Retail payments to de-risk the dependency on NPCI. The licensing and implementation of the first set of products NUEs would take nearly two years, and some big names are in the fray.
We believe that the rollout of NUE will have an adverse impact on most banks except payment leaders. The key reason for adverse impact includes:
- Capital Investment: All new payment product rollouts typically expect new technology and infrastructure deployment on bankside with enterprise licenses. This cost would be upwards of 150,000 USD in most cases. To ensure that these payment products are available, additional efforts are needed to roll out these APIs externally securely.
- Operations / Settlement Management: The addition of each new payment instrument dramatically increases the operations and settlement efforts on the bank side.
- Increased Risks: We have seen banks losing money due to reconciliation and security issues on payment platforms. The addition of new products by new NUEs would exponentially increase the risks.
- Liquidity Costs: To support the free flow of funds by customers, banks would have to increase the liquidity to help each of these products.
Revenue impact: Payment instruments have primarily been moving towards zero pricing. We believe that this phenomenon would continue in the future.
As smaller banks would be pushed to deploy these payment instruments, they will end up bleeding every time they add new products. Assuming that 3 NUEs would launch two new services every year, banks would spend 1 million dollars to support this. So we have to find a way to solve this.