Will RuPay and UPI Credit become separate companies? NPCI is planning a major restructuring of its businesses

The corporation, the umbrella body for retail payments in India, has already set up three wholly-owned subsidiaries — NPCI International Payments, Bharat BillPay and NPCI BHIM Services, three people familiar with the matter said. According to the people cited above, it is planning a restructuring exercise to streamline operations into six major businesses.

Next in line could be card network RuPay, NPCI’s rival to global networks such as Visa, Mastercard and American Express, which has seen significant growth in the past two years, two of the three people said on condition of anonymity.

According to NPCI, RuPay debit and credit cards, launched in 2012, are issued by over 1,300 banks. The network is now available in five countries, including Singapore and the UAE. By June 2023, the network will be available in 1,300 countries. Reserve Bank of India Foreign currency cards were allowed on RuPay. In FY24, there were 968 million transactions through RuPay cards, down from 1.26 billion in FY23. The number of transactions remained unchanged in ₹2.4 billion in both years.

On August 13, NPCI announced that it is setting up NPCI-BHIM as a wholly-owned subsidiary, citing the growing demand for digital transactions and the need to promote financial inclusion. However, industry experts suggested that another driving factor could be the acquisition of private entities such as PhonePe and GooglePay, which dominate the UPI transaction market. The move to grow BHIM is also aimed at reducing the ecosystem’s dependence on a few large private players, experts said.

UPI data

India recorded around 131 billion UPI transactions in FY24, up from 83.7 billion in FY23, Finance Minister Nirmala Sitharaman said in April, citing NPCI data. In July, 14.44 billion UPI transactions worth 14.44 billion were recorded. ₹$20.64 trillion was processed, up 45% in terms of volume and 35% in terms of value compared to the same period last year. UPI is now available in seven countries outside India.

“NPCI may then consider segregating its lending business under Credit on UPI,” a third person said. Under Credit on UPI introduced in October 2023, NPCI facilitates lending by linking credit cards to UPI IDs, or through pre-approved credit lines extended by banks against UPI IDs.

NPCI also operates the National Automated Clearing House (NACH), FASTag, Aadhar-enabled payment services (AePS), UPI Lite and UPI 123Pay. The corporation may also consider demerger of one of these, the people cited above said.

In July, 323 million were registered FASTag transactions, 9% more than the previous year, worth ₹5,578 crore, up 12% from the same period last year. Meanwhile, AePS transaction volumes were 11% lower and transaction value declined 18% to 97 million transactions. ₹24,218 crore by July 2024.

An NPCI spokesman declined to comment.

Experts said NPCI’s existing subsidiaries have helped it better focus on specific areas.

“A subsidiary has also ensured that while the technology infrastructure is shared with the parent, each of these verticals would be run independently by a separate team,” said Mihir Gandhi, partner and payment transformation leader, PwC India. “It would be interesting to track the performance of the BHIM UPI subsidiary as it will have a consumer-facing business.”

According to Gandhi, a separate subsidiary could also mean that NPCI can introduce more features into its existing products or launch new products.

In July, 14.44 billion UPI transactions worth ₹20.64 trillion were processed, 45% more year-on-year in terms of volume and 35% more in terms of value.

Others believe that creating subsidiaries helps unlock the business potential of verticals and aims to provide sufficient focus and budget, along with independent machinery.

“For example, NPCI International has to work closely with local regulatory bodies in various overseas markets, global payment systems and governments. It requires a very different skill set than what the core NPCI team might have and we have already seen UPI adoption in many countries,” said Parijat Garg, a fintech expert.

NPCI’s growth

NPCI International was set up as a subsidiary of NPCI in August 2020, primarily to expand the reach of UPI and RuPay overseas. “It is also a matter of pride for NPCI that several countries like Asia, Africa and the Middle East have shown interest in replicating our model in their own nations,” NPCI Managing Director and CEO Dilip Asbe said at the time.

There has been tremendous growth in digital payments, said the third person, a senior executive in the payments industry.

“With so many new players entering the ecosystem and NPCI’s own books also growing, it makes sense that they start looking at each vertical as an individual business segment that can be allowed to grow on its own,” the executive said.

With participation from other private players remaining low amid awaited extension of the proposed volume cap for UPI platforms, the move to grow BHIM, experts said, is also aimed at reducing the ecosystem’s dependence on a few large private players.

While NPCI is an umbrella organisation for retail payments, it also competes with private entities in several segments such as card infrastructure and bill payments. It also licenses or approves the participation of issuing banks, payment service provider (PSP) banks, third-party application providers (TPAPs) and prepaid payment instrument (PPI) issuers in UPI.

Giving this overall role, segregating the business operations into separate subsidiaries appears to be the next step for NPCI to avoid any potential issue of bias towards its own products and services, and to ensure that all companies operate on equal terms with each other within an open market structure, the experts cited above said.

“It’s quite a long exercise. It seems like they’re looking at each business segment to determine which ones have become too big or which ones haven’t taken off as expected and need special attention,” the second person said, adding that the restructuring exercise could also involve some consolidation of existing business lines within these broad verticals.

NPCI, an initiative of the Indian Banks’ Association and the Reserve Bank of India, was set up in 2008 as a not-for-profit entity to provide infrastructure to the banking system for physical and electronic payments and settlement systems.

The top ten promoters of NPCI are State Bank of India, Punjab National Bank, Canara Bank, Bank of Baroda, Union Bank of India, Bank of India, ICICI Bank, HDFC Bank, Citibank and HSBC. In 2016, the shareholding was expanded to 56 member banks, following which, in 2020, other entities such as payment system operators (PSOs), payment banks and small finance banks were added.