E-wallets get a leg up as interoperability guidelines make usage more efficient

By: | Updated: October 24, 2018 2:38 AM

With RBI giving the green signal to inter-operability of pre-paid instruments (PPI), primarily wallets, digital transactions should gain momentum.

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With RBI giving the green signal to inter-operability of pre-paid instruments (PPI), primarily wallets, digital transactions should gain momentum. Moreover, the Unified Payments Interface (UPI) will get a big boost since the inter-operability for wallets will be enabled via the UPI. Allowing inter-operability between wallets is much like consumers being able to use any ATM rather than only the ATMs belonging to banks where they have accounts.

Although there is a lot of cash in circulation, digital transactions are on the rise, especially thanks to more online shopping and the efforts of players such as Paytm that have attracted customers with good deals. In August, the value of mobile-wallet transactions stood at Rs 15,573 crore compared with just Rs 5,310 crore in June 2017. In terms of volumes, too, transactions in August were of the order of 341 million, up from 222 million in June 2017. The increasing number of customer service points—thanks to inter-operability—will boost electronic transactions.

Customers are likely to use wallets and maintain more cash in them since they no longer need to worry about being able to transfer money from one wallet to another; the inability to do this had made customers wary of leaving too much money lying around in wallets. Also, using a wallet means the customer does not expose his bank account to the system.

To be sure there are virtually no pure play wallets anymore; that model was discovered to be untenable a long time back and most players have re-invented themselves. But they are all essentially digitally-oriented, whether it is a payments bank or a player specialising in digital remittances. And with this inter-connectivity being enabled, they can now compete more effectively with banks, given they are often able to offer customers better deals and better service.

The big problem, of course, has been the KYC verification of customers since this is a time-consuming and costly process but that is important. Indeed, one is pleasantly surprised RBI has allowed inter-operability so soon and, moreover, has also allowed card networks—for meals, gifts and so on—to be part of the interconnected system. One would have expected the central bank to wait until the systems had been tested out for a little longer. Random checks on the accuracy of the KYCs need to be carried out to protect the system. The security measures have been spelt out in detail. For instance, cards issued by non-bank PPI issuers will ab initio need to be both EMV chip and PIN compliant. The capital requirements are not onerous at all; all non-bank entities need to have a minimum positive net worth of Rs 5 crore when applying and need to increase this to Rs 15 crore in three years. That is a very low entry barrier.

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