In this blog post, we present our response to the Draft Framework for authorisation of a pan-India New Umbrella Entity (NUE) for Retail Payment Systems (hereafter the Draft Framework) in response to the call for comments from all stakeholders by the Reserve Bank of India (RBI).
Our response is accessible here. It is organised into two sections. Section I presents five overarching concerns with the Draft Framework. These are summarised below:
- Clearer regulatory objectives must guide the vision and design for NUE: The Draft Framework does not shed any light on the regulatory objectives or welfare compulsions prompting the RBI to create a new class of entities- the NUE(s), under the Payment and Settlement Systems Act 2007 (PSSA 2007). Ambiguous regulatory objectives make it difficult to assess the effectiveness and proportionality of regulations. We recommend that future iterations of this Draft Framework should clearly articulate the regulatory objectives that it seeks to achieve.
- The definition and Scope of Activities need clearer articulation and greater alignment with regulatory objectives: The Draft Framework does not define the term ‘New Umbrella Entity’ or lay down the necessary characteristics of a NUE. The ambit of the Scope of Activities is extremely vast and potentially indeterminate. Currently, activities performed by many entities already regulated under the PSSA 2007 also appear to fall under the Scope of Activities of the NUE(s). This can result in duplication of regulation. Therefore, we recommend that the Draft Framework must clearly define NUE(s) and their Scope of Activities.
- The Draft Framework must clarify if these regulations will apply to the NPCI: It is unclear if this Draft Framework is applicable to the NPCI. Therefore, we recommend that future iterations of the Draft Framework should clarify if the NPCI will be regulated by this framework. It should also set out a clear transitional path, including the time available to the NPCI to comply with these regulations.
- The Draft Framework must incentivise interoperability to ensure competitiveness among NUE(s): At present, the Draft Framework lacks provisions to encourage interoperability. Merely the presence of multiple system providers is insufficient for ensuring competitiveness in the retail payments space or addressing concentration risk or the risk of non-substitutability of providers. Encouraging interoperability could address these market failures. Specifically, the Draft Framework must (1) incentivise interoperability among the various players of the payments systems; and (2) encourage NUEs to comply with common standards in relation to acceptance infrastructure.
- The Draft Framework needs to outline a robust consumer protection framework: The Draft Framework does not envisage specific conduct guidance or consumer grievance redress mechanisms for NUE(s). Specifically, it (1) lacks guidance on grievance redress framework; (2) does not oblige NUE(s) to protect users’ personal data; and (3) does not contemplate safeguards to test the impact of innovation in payments system on consumers. To address these gaps in consumer protection, we recommend (1) integrating the grievance redress channels of the NUE(s) with existing grievance redress channels; (2) creating a unified redress front-end for consumers; (3) incorporating protection of users’ personal information as an obligation of the NUE(s); and (4) using the RBI’s Regulatory Sandbox (RS) to assess the effect of new innovations for consumers.
Section II of the response concludes with a summary of recommendations to address these policy concerns. Our full response submitted to the RBI is available here.
 The authors would like to thank Deepti George and Malavika Raghavan for their feedback and peer-review. All shortcomings are those of the authors.