NPCI: Full Form, Objective, Formation & Services

What is NPCI?

NPCI is an organisation that is engaged in operating retail payments and settlement systems in India. NPCI is an initiative taken Reserve Bank of India (RBI) and the Indian Banks’ Association (IBA) to draft a robust Payment and settlement Infrastructure in India under the provisions of the Payment and Settlement Systems Act, 2007. NPCI was created to discharge utility for managing payment and settlement systems using optimal usage of technology, given its characteristics, NPCI has been incorporated as a Not for Profit Company under the provisions of Section 8 of the Companies Act 2013.

• The intention of framing NPCI is to provide infrastructure to the entire Banking system in India for physical as well as electronic payment and settlement systems which not only help individuals but also help businesses.
• NPCI is focused on coming up with innovations in the area of retail payment systems through the use of the latest technology for achieving efficiency in operations and widening the reach of payment systems.

Full form of NPCI

NPCI stands for National Payments Corporation of India. NPCI along with its ten core promoter banks which include State Bank of India, Punjab National Bank, Canara Bank, Bank of Baroda, Union Bank of India, Bank of India, ICICI Bank Limited, HDFC Bank Limited, Citibank N. A., and HSBC. NPCI has the role of prescribing rules, regulations, guidelines, and all the respective roles, responsibilities, and liabilities of the PSPs and TPAP, transaction processing and settlement, dispute management, and clearing cut-offs for settlement. NPCI has made a significant impact on the retail payment systems in the country and has achieved the objectives for which it was formed.

Objectives of NPCI

1. Infrastructure for Banking: The NPCI‘s main objective is to provide an improved infrastructure for the entire banking industry to introduce electronic and physical settlement and money transfer systems.

2. Integrated System: NPCI has the task to consolidate, combine, and integrate multiple systems for payment with varied service levels into a single nationwide standard uniform and set a standard business process for all retail payment transactions which were unorganised and scattered. NPCI is set under the guidance and support of the RBI, and the Indian Banks Association to fulfill its role.

3. Merge Payment Systems: NPCI‘s primary goal is to simplify, merge, and incorporate various payment systems with varying standards of coverage into a single uniform national standard and business process for all retail money transactions.

4. Innovations in Banking: NPCI’s goal is to bring technological innovations in retail payment to achieve greater efficiency in operations and widen the reach of payment systems.

5. Improved Retail Payment System: NPCI operates in developing and implementing a national system that can be used by retailers daily to ensure that the same system is uniformly standardised all over the nation.

6. Improved Turnaround Time and Save Cost: One of the important objectives of NPCI is to design and promote an effective financing process or system that saves time and cost for individuals and businesses who incur transactions daily, and ensure proper redressal of grievances and appeals against erroneous transactions.

Vision of NPCI

1. Best in Class Payment Platform: The vision of NPCI is to provide the country with the best, most secure, simple, and easy-to-use payment interface option anywhere around the country for retail payments, and to create a cost-effective web-based interface. NPCI’s main aim also includes operating the main interest of common men at first and then the interest of all its member banks.

2. Risk Management: NPCI has always considered the management of risks as a core vision mission. NPCI’s vision is to ensure the safety, security, and sustainability of national retail payment systems. Effective risk management is fundamental to generating critical mass and optimum risk-reward strategy. Risk management is thus considered to be the epicenter of decision-making at NPCI.

3. Facilitating Financial Inclusion: NPCI has a key role in promoting financial inclusion in India. One of the guiding pillars for NPCI is to make the payment systems easier for people living in remote areas so that they can have easy access to financial services. The other aspect of this is to reduce the dependence on cash transactions and increase the accessibility to digital payments in rural areas.

NPCI has a mission statement “Touching every Indian with one or another payment service”.

4. Creating Solutions with Integrity: Acting with integrity throughout the cycle is the key to building and maintaining trust among customers and stakeholders.

5. Secure Payment Gateways: NPCI has to ensure that its payment systems are secure and safe to use. NPCI is taking all the steps to implement several measures to prevent fraud, such as two-factor authentication, biometric authentication, and daily transaction limits. NPCI is looking to increase user confidence in digital payments so that it is easier for people to make transactions without the fear of fraud or any trouble of losing data.

Formation of NPCI

1. Establishment: The National Payments Corporation of India is a company that is registered under Section 8 of the Companies Act of 2013, with its main office in Mumbai. NPCI is formed as a Not-for-profit company.

2. Core Promoter Banks: There are in total ten core promoter banks, which are State Bank of India, Punjab National Bank, Canara Bank, Bank of Baroda, Union Bank of India, Bank of India, ICICI Bank Limited, HDFC Bank Limited, Citibank N. A., and HSBC.

3. Other Representation: In the year 2016, the shareholding was widened to include 56 member banks to increase the number of banks representing all sectors. In the year 2020, new entities regulated by RBI were introduced, consisting of Payment Service Operators, payment banks, Small Finance Banks, etc. The shares were allotted under the issuance of equity shares based on private placement in compliance with the Companies Act, 2013.

4. Other Group Companies: NPCI International and NPCI Bharat BillPay Ltd. are two other group companies of NPCI.

5. Organisational Structure: NPCI has one MD&CEO, who manages the company and other KMPs including the Chief operating officer, chief risk officer, chief platform officer, chief technology officer, chief of finance, chief human resource & admin of different departments. Dilip Asbe is the MD&CEO of NPCI.

Services Offered by NPCI

1. National Financial Switch (NFS): National Financial Switch (NFS) is an ATM network with 37 different member banks that connects 50,000+ ATMs, on 14 December 2009 these were taken to NPCI’s authority from the Institute for Development and Research in Banking Technology (IDRBT). After taking over, the NFS ATM network has grown widely. There are 1,140 members along with more than 2.41 lakh ATMs connected to the network as of 31 July 2019.

2. Unified Payments Interface (UPI): UPI is the most successful service offered by NPCI, using the UPI system, multiple bank accounts can be accessed from a single mobile application. This allows users to make instant money transfers through mobile devices round the clock, any day of the year without any disruption. The UPI technology also supports peer-to-peer collection request service with a scheduling facility. For facilitating UPI, NPCI has also introduced the BHIM application, which is a simple UPI-based payment interface.

3. Immediate Payment Service (IMPS): Immediate Payment Service (IMPS) allows users to transfer money in real-time around the clock, 365 days of a year. Before the introduction of IMPS, consumers had only two options which were NEFT and RTGS facilities, but they had their inherent limitations, as they were available only during the bank working hours. NPCI conducted a pilot project of the technology with major banks such as SBI, BOI, UBI, and ICICI in August 2010. After the successful trial, IMPS was publicly launched on 22 November 2010.

4. RuPay: RuPay is the first-of-its-kind global Card payment network in India. It is a new card payment system launched to achieve RBI’s vision to offer a domestic, open-loop, and multilateral system. RuPay paved the way for Indian banks and financial institutions to implement electronic payments. The term ‘RuPay’ is coined via a combination of Rupee and Payment. RuPay Contactless payments technology is also introduced by NPCI using open standards.

5. National Automated Clearing House (NACH): NACH is defined as a centralised system that enables the automated clearing of high-volume electronic transactions, like pensions, subsidies, or any other kind of reimbursement coming from the side of the government. NACH system was developed to standardise and synergise the interface of all electronic transactions with the compliances and regulations across all banking and transaction-related services.

6. Aadhaar Enabled Payment System (AePS): AePS is a bank-led model that allows online interoperable financial inclusion transactions at PoS of any bank by using the Aadhaar authentication with the help of the retail merchant. A customer is required to provide basic details such as bank identification, an Aadhaar number, and a fingerprint to complete a transaction through AePS.

7. e-KYC: KYC stands for know your customer, it is an electronic way of conducting authentic & real-time KYC of Banks’ customers using Aadhaar authentication.

8. Cheque Truncation System: An electronic image of the cheque is transmitted to the drawee bank by the clearing house, along with relevant information to verify the cheque transaction.

Conclusion

NPCI has successfully improved the infrastructure for the entire banking industry in India. NPCI has created a robust physical and digital payment and settlement system and has simplified, merged, and incorporated various payment systems into a single national standard uniform and business process for all retail money transactions. NPCI has played a vital role in bridging the financial inclusion of rural and semi-urban populations by introducing features like UPI, AePS, USSD-based banking, etc. NPCI has created services and products that are not only popular in India but have gained attention all around the globe. Countries like France, UAE, Saudi Arabia, Bahrain, Singapore, Maldives, Bhutan, etc. have shown interest in adopting the UPI technology.

However, there are still several challenges ahead for NPCI that need to be mitigated, such as cash dependency, better infrastructure, and cybersecurity. NPCI needs to move towards innovating and investing in technology and infrastructure to achieve its vision of creating a cash-free society in India and creating more financial inclusion of rural and semi-urban populations.