-By Kalpesh J Mehta
It is welcome news that mobile wallet interoperability will finally see the light of day. Interoperability allows compatibility between payment systems and, once implemented, a user will be able to transfer funds between wallets and also from their wallets to bank accounts. Interoperability in the space of digital wallets will facilitate ease of transactions. The biggest beneficiaries of interoperability will be wallet users, who will not have to specifically look for merchants who accept a certain wallet. With interoperability, they can make payments from a wallet to any merchant who accepts digital payments.
This will bring wallets on par with cards, with all transactions being accepted at all networks. It also means that different companies, which are otherwise competing with each other for a larger share of the business, will end up sharing resources, and can focus on creating a more distinct value-added platform.
This move comes along with other sweeping reforms that the regulator plans on undertaking in order to facilitate a smoother digital payments eco-system that could influence more businesses and customers to adopt digital transactions, along with its directive on compliance deadlines for the new set of rules which includes stricter Know-Your-Customer (KYC) norms for e-wallets.
While traditional banks have seen moderate success with their own mobile wallets, the Unified Payment Interface (UPI) is seen as a turbo boost, allowing interoperable payments using a simple unique identifier known as the virtual address. The industry is witnessing a change in the customer preference, where cards are not the form factor of choice for electronic payments and are being replaced by mobile phone or biometric payments. An interoperable platform such as UPI has sown the seeds for a number of innovative business models. Payments fintech companies, including wallets and PoS solutions providers, are also working towards integrating credit offerings by analysing the transaction history of users. Most of the large wallet players are working with other financial institutions to offer small value loans to their users. These loans can also be used to effect purchase in case of shortfall in funds in the wallet. By leveraging transaction history and developing spend patterns, wallets are effectively able to generate a proprietary credit scope, which can be used to offer loans by partner banks and NBFCs.
The financial ecosystem in India is undergoing transformation with trends taking a root cause in services and emerging business models, and they are changing financial services business designs and delivery models. These are also bringing a larger number of people under the financial inclusion umbrella. In this era of ‘digital Darwinism’, an era where technology and society are evolving faster than businesses can naturally adapt, India has displayed a significant growth in adoption of digital payments. The acceptance of every e-wallet across the ecosystem, seamlessly, is the game changing aspect of the recent guidelines. Mobile wallets have shown immense potential to drive the government’s agenda.
So far, the wallets have operated in semi-closed loops and couldn’t interconnect with each other. It is quite encouraging to see policymakers set an ambitious and forward-looking agenda for a ‘less-cash’ digital society, in such a comprehensive manner. While industry players may have found a way to trigger a strong adoption wave among consumers to use new payment products, micro and small merchants continue to be wary of digital payments. Industry participants will need to redouble their efforts to create merchant awareness and education in order to dislodge a well-entrenched cash behaviour. It is time for the focus to shift towards catalysing offline merchant payments adoption. Going forward, fintechs need to innovate on bigger value propositions for merchants like loyalty, post-sale analytics, and merchant ratings, on top of the UPI platform. Incumbents will do well to remember that only by having a sharp focus on real merchant value proposition, awareness creation, and a well-engineered market delivery model, will they make tangible progress towards conquering this last frontier for digital payments.
-The author is Partner, Deloitte India