NPCI – India’s Fintech Giant

  • November 20, 2023
  • Posted by: OptimizeIAS Team
  • Category: DPN Topics
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NPCI – India’s Fintech Giant

Subject : Economy

Section: Msc

  1. Recognition:
    • Flagship products: UPI (Unified Payments Interface) and RuPay card network.
  2. Products and Services:
    • Homegrown services: IMPS, NFS, BHIM, BBPS, NACH, AePS.
    • Contributions to changing how India deals with money.
  3. Financials:
    • Closed FY23 with ₹828 crore in net profit.
    • Operates as a non-profit for the objective of public good.
    • Challenges regarding the business model and cost distribution.
  4. Evolution and Monopoly:
    • Established in 2008, started operations in 2010, launched UPI in 2016.
    • Conversations around monopolistic control and lack of healthy competition.
    • Concerns about innovation and healthy competition in the payments arena.
    • Lack of independent holding or supervisory organization raises concerns.
    • Calls for encouraging participation from private players for industry growth.
  5. Performance and Reach:
    • UPI processed 1,141 crore transactions in October 2023 worth ₹17.16 lakh crore.
    • UPI transactions grew at a CAGR of 163% (FY18-FY23) in value and 56% in volume.
    • RuPay’s exponential growth in annualized rate (about 40% in FY17-FY22).
  6. Future Challenges and Succession:
    • Challenges regarding NPCI’s reliance on a single entity for the country’s digital payments infrastructure.
    • Questions about NPCI’s future, governance, and succession management.
    • Need for succession planning given NPCI’s scale and criticality.
  7. Public Good vs. Profitability:
    • NPCI operates as a nonprofit for public good, aligning with government objectives.
    • Debates about whether NPCI should rethink its strategy for the larger good.
    • Concerns about monopolistic control and the absence of healthy competition.
  8. Global Acceptance and Market Share:
    • NPCI aims for global acceptance, especially for UPI and RuPay.
    • Calls for private players’ entry to build global scale and competitiveness.
    • Plans for RuPay to gain market share in credit cards and achieve significant transactions.
  9. Profi­­tability and Future Outlook:
    • Profi­tability discussions expected once significant ground is covered.
    • Government’s decision on NPCI’s achievements, valuation, and potential listing.
    • NPCI’s grand plans include gaining a 10% market share in monthly credit card spends.
  10. Competition and Transformation:
    • NPCI’s potential transformation into a ‘Navaratna’ or listing on exchanges.
    • Speculations on NPCI shedding its benevolence tag, but potential competition from the private sector is essential.

NPCI’s Services:

  1. IMPS (Immediate Payment Service):
    • Real-time interbank electronic funds transfer service.
    • Enables instant money transfer through mobile phones.
  2. NFS (National Financial Switch):
    • Network that connects multiple banks, allowing seamless electronic funds transfer.
    • Facilitates ATM transactions and POS (Point of Sale) transactions.
  3. BHIM (Bharat Interface for Money):
    • UPI-based digital payment app.
    • Allows users to make quick, secure, and cashless transactions.
  4. BBPS (Bharat Bill Payment System):
    • Centralized payment platform for various bill payments.
    • Enables consumers to pay bills seamlessly through a single platform.
  5. NACH (National Automated Clearing House):
    • Facilitates bulk electronic transactions like salary payments, dividends, etc.
    • Provides a secure and efficient way for repetitive payments.
  6. AePS (Aadhaar Enabled Payment System):
    • Allows Aadhaar-linked bank account holders to make financial transactions.
    • Provides basic banking services through Aadhaar authentication.

About NPCI:

  1. Formation: The National Payments Corporation of India (NPCI) was incorporated in 2008 as a “Not for Profit” company under the Companies Act 1956 (now Section 8 of the Companies Act 2013).
  2. Initiative: NPCI is an initiative of the RBI and IBA, established under the provisions of the Payment and Settlement Systems Act, 2007. It aims to create infrastructure for the entire banking system in India, covering both physical and electronic payment and settlement systems.
economy NPCI - India's Fintech Giant