National Payment Corp plans to buy NFS

The National Payment Corp of India (NPCI), an organisation set up by the Reserve Bank of India (RBI), is planning to acquire the National Financial Switch (NFS) from the Institute for Development and Research in Banking Technology (IDBRT), in a bid to create more resources for itself to facilitate retail payments.
According to informed sources, the deal could be sealed by next month. Financial details, however, were not disclosed.

NFS, which facilitates routing of ATM transactions through interconnectivity between bank switches, is also the largest network of shared ATMs in the country. The acquisition could prove to be a bonus for NPCI, which has been entrusted by the central bank to start a new domestic card payment system in the country that can handle both debit- and credit-card transactions.

The idea of a domestic card payment system is meant to compete with Visa and MasterCard, who have a virtual duopoly in card transactions worldwide and charge Indian banks a hefty fee for associating with them. Domestic card companies, till date, do not have any other option but to affiliate or tie up with foreign card companies, especially the two mentioned above, so as to enable them to spread their services globally.

“The idea is to route all the domestic transactions through the domestic switch only,” an official from a State-run financial institution told Moneylife.

The bidding process for the payment gateway has already begun and the potential bidders for creating the technology would include Wipro and Infosys and other Indian IT companies and world switch operators, the source added.

While declining to comment on the time-frame for completing the domestic payment system, the source said, “It will be very difficult at this point for us to comment on how long it would take. It would be planned as soon as possible.”

However, according to sources from NPCI, setting up of a domestic payment system or gateway would take at least two to three years for implementation.

“We have not yet decided on the transaction charges but it would be nominal compared to what Visa and MasterCard charge,” a government official said.

Currently NFS charges two kinds of fees—one for cash withdrawal on which it charges Rs18 per transaction plus service tax and for balance inquiry banks pay Rs8 per transaction and service tax.

Industry sources are very optimistic about the domestic card payment system and its ability; many believe that the transaction process would become much faster. —Aaron Rodrigues

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    1 decade ago

    While the countryfolk is struggling to keep pace with the rising food inflation and unaffordable property prices, our Central Bank thinks it fit to use resources to create a network which is useful only for the middle and upper middle class and above of the population segment. So what if VISA and MasterCard are the only two systems available, they are doing a good job all over the world. So why should the RBI or the banks be inimical towards these? There is a healthy competition between the two like there is one between Pepsi and Coca Cola. Banks charge a fee for every service they provide to the account holders, why should they crib about fees being charged to them by these companies. If they dont find value in these products, then stop distributing them!! Also, I suggest that Moneylife give a more balanced view of the reports instead of just relaying one side of the story. This is what yo do for most of your reports, so why not for this one.
    I have been following stories on the National Payments for some time. Do you know that the success of NFS (ATM switch) is because RBI has mandated it to be free of charge for the banks for sometime, and also RBI officials have threatened banks against using the multi national networks (who would regulate the regulator??) or have bilaterals?

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