After SBI, HDFC Bank may join race to set up NPCI rival

HDFC Bank, the country’s largest private lender by assets, may join the race to set up an umbrella entity for retail payments, sources aware of the matter told FE. The bank is still at a preliminary stage of work on this. It is the second bank after the State Bank of India (SBI) to explore the possibility of setting up a payments body, envisaged as a rival to the National Payments Corporation of India (NPCI).

“The matter is still in the preliminary stages, but HDFC Bank is certainly considering the NUE option as a possibility,” said a person close to the development.

Apart from the two banking majors, Jio, Paytm, BSE and the National Stock Exchange (NSE) are known to be contemplating the setting up of their own umbrella entities.

Industry executive Naveen Surya, who earlier headed ItzCash and is currently chairman emeritus of the Payments Council of India (PCI), may also apply for an NUE licence in his individual capacity.

On August 18, the Reserve Bank of India (RBI) released the framework for authorisation of pan-India umbrella entities for retail payments. The regulator did not specify whether it intends to issue a single licence or multiple licences. The last date for sending in applications is February 26, 2021, and the RBI said it “will endeavour” to complete the process within a six-month period.

The scope of activities of the licensed umbrella entities will include the setting-up, management and operation of new payment systems in the retail space, monitoring-related issues in the country and internationally and taking care of developmental objectives like enhancement of awareness about the payment systems.

They will be expected to operate clearing and settlement systems for participating banks and non-banks as also identify and manage relevant risks. “It is also expected to interact and be interoperable, to the extent possible, with the systems operated by NPCI,” the RBI said in the framework.

HDFC Bank is among the leading players in India’s payment systems. According to its annual report for FY20, it had 1.45 crore credit cards and 3.21 crore debit cards in circulation.

Its digital payments solution SmartHub consists of over 17 lakh merchant acceptance points ranging across scan and pay QR codes, Android POS, mobile POS, link-based web solutions and payment gateway. It is the market leader in the merchant acquiring business, processing over 48% of the total merchant transactions in the country. The lender enables 40% of POS transactions and 50% of online transactions in India.