The Unbundling of NPCI-Vibhu Arya

Background

India’s RBI regulated financial sector is, by the banks, of the banks, and for the banks, wherein the industry body, Indian Banks Association (IBA) enjoys enormous collective bargaining power and unless once-in-decade events like a bank promoter turning rogue occur, RBI rarely interferes and in turn, expects banks to willfully adhere to its cast-in-stone rules and run their business, rake in the profits.

Most other Non-bank financial entities, including Fintechs, wallets, payments technical service providers, payment gateways, forex providers, neo banks, digital lenders and other such entities need to partner RBI regulated banks, most importantly for everything payments & settlements.

Majority of India’s payments and settlements in India are run by ?????? ????????? ?????? ???? (NPCI), a 2008 vintage non-profit entity, “set up with the guidance and support of the Reserve Bank of India (RBI) and Indian Banks Association (IBA).”

NPCI enjoys a monopoly on its products, networks, protocol, and schemes.

NPCI is great.

The twelve-year-old NPCI runs India’s alphabet soup of payments and settlements system which power India’s quarter-million strong ATM network, clearinghouses, FastAg Electronic Toll Collection, Fast Payment Methods of UPI & IMPS, BillPayments, QR codes, Adhaar enabled micro ATMs and most ambitiously Rupay, India’s very own card scheme.

These dozen diverse products are run by NPCI, super-efficiently.

Growing needs of a digital India, 3 questions:

1. In a rapidly digitising economy, does Digital India’s “payments and settlement systems” deserve continual innovation for delivering more, better, faster, safer products for a country of 1.35 Billion?

2. Can India afford a digital demonetisation equivalent if its sole “payments and settlement systems” were to have an extended, unscheduled downtime?

3. Will competition to NPCI secure or mar its future?

RBI is answering these three questions via opening applications to permit Multiple Alternate Payments Corporations of India (MAPCIs).

These new entities are expected to follow the guidelines, commit and bring the requisite resources to usher innovation, add competition, and build redundancy for India’s payment and settlement systems. Applications can be submitted here until February 26, 2021.

India’s Fintech’s: Dare to think beyond digital lending?

Venture capital firm A16Z tallied 2000 new fintech startups, globally in 2019, an average of 5 new fintech startups created every day. This is peak fintech.

The Fintech gold rush has reached India, with over 1000+ fintech startups, the majority of them having different products (the means) like open banking, neo banking, merchant payments, payment gateways, SuperApps, dozens of varied lending products and form factors, but identical potential profit pools (the ends) of lending, and finally making money. Unlike India’s e-commerce, ride-sharing, food delivery, ed-techs which have little structural dependencies, the bank-dependent structural challenges of Indian Fintech are too stark to ignore.

Buffetspeak, What is digital lending as the ultimate goal’s durable competitive advantage, and where is the wide, sustainable moat that will deliver rewards to investors?

The opportunity to build whole or parts of India’s payments and settlement systems for India is the perfect prescription for India’s vibrant fintech startups. This is where independent of banks, Fintech’s technology, intellect, & hustle will be put to great use.

Build a card scheme, build a better fast payments protocol, build and run a swifter micro-ATM network, the opportunities are everywhere.

A dozen of India’s existing Fintech startups will easily qualify the technical and capital requirement criteria for RBI’s call for Multiple Alternate Payments Corporations of India (MAPCIs), other startups must vigorously explore the MAPCIs opportunity, augment their resources before submitting a winning application to RBI, clearly outlining their ambition to architect and build transformational world-class payments and settlement systems for a more deserving than ever, digital economy of India.

The Math of $95 Billion

NPCI is a not-for-profit company, with a majority shareholding held, via public sector banks, by the Government of India.

NPCI runs the dozen-odd monopoly products, protocol, and networks that constitute India’s payments and settlement systems. Individually each of these products is very, very valuable, consider the examples of NPCI’s listed comparable peers running only part of their business.

• Visa, a card scheme like NPCI’s Rupay enjoying a valuation of over $400 Billion.

• Cardtronics, an ATM network like NPCI’s NFS is valued at $1 Billion

• Euronet, a Financial Instructure company, is valued at $5 Billion.

I ran some numbers and ultra conservatively, estimate NPCI’s sum-of-parts valuation to be $95 Billion, which is now up for grabs!

This is perhaps this decades biggest fintech opportunity, not in India but globally. enough to get Softbank’s Masa San excited.

The Great NPCI Unbundling

NPCI is a bundle of a dozen products, networks, protocols, schemes, which is ripe for Fintech startups to unbundle.

The unbundling will bring choice, flexibility, and create value for all, including NPCI, by making it strive for relevance and thus become competitive.

Startups can architect any or all of NPCI’s products and more, try imagining an alternate UPI, Fastag, or Rupay card scheme.

From being dependent on banks, the fintech MAPCIs can break free and enjoy the guilty pleasure of watching banks avail their superior “payments and settlements service” while picking ginormous chunks from the potential $95 Bn unbundling of NPCI opportunity.

This post has sequels and will be posted over the next fortnight, where I flesh out two specific use-cases for Fintech startups to carve out alternate product offerings.

Part 2 of the post: Visualising an alternate Fast Payments Method (ala a new UPI)

Part 3 of the post: Reimagining India’s local Card Scheme Rupay, learnings from China’s UnionPay

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