With the RBI laying down operational guidelines for interoperability of prepaid payment instruments on 16 October, the landscape of digital payments ecosystem in the country is set to change. Interoperability, as the name suggests, will allow a person to transfer funds from one digital wallet to another and eventually from their wallets to bank accounts through the unified payments interface, ushering a new age era of digital payments. To explain this further, until now a person could only transfer funds between the same wallets, say two PayTM wallets, but as these guidelines take shape, they will be able to transfer funds from PayTM to another wallet, say MobiKwik or Freecharge. The existing walls inhibiting transfer across multiple wallets is being done away with and users will have the flexibility to transact their funds from their preferred wallet across other wallets.
RBI had first ventured into interoperability in October last year with the promise of achieving the same in the next 6 months but later left digital wallets, payment banks in a limbo as the central bank got late in issuing operational guidelines to govern this. The operational guidelines that are now in place focus on achieving seamlessness and digital compatibility between different forms of digital payments in different phases.
The guidelines are being seen as a glimmer of hope of achieving a unified payments system in the digital space in the future. They will result in an overhaul of the payments industry and in turn promote digitalization. Needless to say, this will affect the status quo and cause a paradigm shift in the digital payments system, as it stands today. It will be met with identifiable pros and cons for the entire digital payment space, which will boost the Digital India movement ahead of the upcoming 2019 elections and improve financial penetration in the digital space.
The directions issued by the RBI stated that interoperability of all KYC-compliant PPIs will be carried out in three phases.
Therefore, the RBI’s plan seems well fletched as it intends on starting out to achieve interoperability first between PPI’s and unified payments interface, which many major wallet players have already done. Once this is in place, RBI will look at interoperability between e-wallets and bank accounts (through UPI), for which these guidelines are to be complied with and followed by the players involved.
As the last step, the central bank will concentrate on achieving interoperability between payments cards and PPIs. “PPI issuers operating exclusively in specific segments like a meal, gift, and mass transport system may also implement interoperability”, RBI said.
Under the guidelines, a non-bank PPI issuer can participate directly or through a sponsor bank arrangement as the case may be. Non-bank PPI issuers shall adhere to the requirements of the respective card network’s settlement system.
Card networks will also be allowed to take on board PPI users (bank and non-bank). “Non-bank PPI users are permitted to participate as members/associate members of authorized card networks”, the guidelines said.
PPI issuers operating exclusively in specific segments like a meal, gift, and MTS can also allow interoperability. However, it is unclear how the transfer of funds from a wallet to the tax-exempt meal or gift cards given by companies to their employees will be treated under these norms.
According to an RBI circular laying down guidelines to achieve interoperability, all PPI issuers (both bank and nonbank entities) are required to make all KYCcompliant PPIs in the form of wallets
The guidelines are being seen as a glimmer of hope of achieving a unified payments system in the digital space in the future. They will result in an overhaul of the payments industry and in turn promote digitalization. Needless to say, this will affect the status quo and cause a paradigm shift in the digital payments system, as it stands today. It will be met with identifiable pros and cons for the entire digital payment space, which will boost the Digital India movement ahead of the upcoming 2019 elections and improve financial penetration in the digital space.
Also asked PPI users to adhere to the security guidelines laid down by the National Payments Corporation of India for UPI and card networks. The directions made it clear that the interoperability at any stage will only be facilitated only to the KYC compliant PPI accounts. It was also mandated that all cards issued will have to be EMV chip and pin from the beginning as the regulator is looking to phase out magnetic stripe cards.
The move was welcomed by the digital payments industry as it was seen as the first positive step towards creating a digital ecosystem where there was no need to participate through multiple payment systems. It would essentially result in the creation of a unified wallet system where funds could be transferred across different wallets, through the UPI.
The payment space in India is quite complex and RBI’s intention as reflected under the guidelines to exploit this can be seen as a progressive step. Inter wallet transfers are set to undergo a reform under the RBI guidelines as they will pitch mobile wallets against payment banks/banks with the aim of bringing them at par with one another. The move will lend credibility by facilitating wallet transfers and place them at a level playing field in the PPI ecosystem. For the user, however, payment banks will offer an advantage over wallets as they will pay interest on deposits as against wallet balances that will not yield such interest.
Payment banks will also stand to gain an edge over mobile wallets as users can retain deposits of up to Rs. 1 lakh in their accounts as against the bar of Rs. 10,000 a month that they can load in their wallets per month. A limit of Rs 1 lakh annually has been set for wallets as against the same
Amount that can be held under a payment bank at any point in time.
The figures for transactional wallet use before RBI’s interoperability guidelines were introduced touched 325.18 million in July this year, according to data released by the RBI. These figures stood at 340.65 million in volume and 155.73 billion in value for the month of August. Major mobile wallet players in the country including PayTM, MobiKwik, Free Charge, Oxigen, ItzCash, all stand to benefit from interoperability as it will boost the volume of digital transactions among users on these platforms.
Wallet companies are on board for interoperability between different kinds of wallets and believe that digital wallets that were earlier seen as a second option for payments will grow to be elevated to the first place as the ecosystem will broaden and open up towards them. According to sources, few wallet players are already testing out the transfer of funds between each other to meet interoperability requirements.
Not all payment banks are happy with this development as they view this as them being pitched against wallet companies. Few payment banks of telecom companies have expressed this opposition towards wallet interoperability by writing to the RBI. The main reason for this is because wallet interoperability translates to a thorny issue for payment banks as it puts them at a disadvantage since it was a business model adopted originally by them.
The move is going to benefit not only users of wallets but also thousands of merchants who have adopted a digital method of making and receiving payments. Once in place, a user who until now has to download several wallets will be able to carry out all wallet to wallet transfers using any one wallet application of his choice. Not only wills this offer convenience to the user in his daily life while undertaking digital transactions, but it will also provide a seamless digital interaction between different wallets. However, to avail benefits of interoperability, users will have to ensure that they are fully KYC complaint.
“Interoperability norms will provide ease to a user who can look forward to a comfortable payment space that is harmonized for his convenience. In addition to this, it will provide efficiency by acting as a one-stop payment pit stop where a user will have to simply tap open one app after which he can undertake a myriad of digital transfers. They can also pay across the merchant network of any other PPI”, an official said.
The move will surely inspire confidence in users who rely on digital payments in various forms more and more for small transactions. They will feel free from constraints of using a single wallet or mode of payment. People can also shuffle funds between wallets, gift cards that are usually a preferred choice for shopping. Similar would be the case for meal cards where interoperability will ease transfer and open up the digital payment ecosystem by removing the past restrictions.
Moreover, at present people turn to wallets for only making small payment amounts towards booking cabs, meals, fuel, grocery, and small household expenditures etc. They usually have frugal balances lying in different digital wallets which has been stopping them from using the wallet system for making a larger purchase. Due to the possibility of being able to move funds around between different wallets, a user can collate all his funds in a single wallet of his choice and use all the funds together for one larger transaction. Adopting a single wallet system will, therefore, offer freedom and diversity to small businesses and to its users who can perhaps look at it as the same way as their bank account in the future.
The figures for transactional wallet use before RBI’s Interoperability guidelines were introduced touched 325.18 million in July this year, according to data released by the RBI. These figures stood at 340.65 million in volume and 155.73 billion in value for the month of August. Major mobile wallet players in the country including PayTM, MobiKwik, Free Charge, Oxigen, ItzCash, all stand to benefit from interoperability as it will boost the volume of digital transactions among users on these platforms.
The sternness of the RBI guidelines which place the onus on KYC compliance by PPI users for interoperability coupled with the Supreme Court’s ruling restricting private entities from relying on Aadhaar based authentication has caused a storm over building adequate infrastructure for it. Several companies including telecom and wallet companies were previously relying on Aadhaar data including biometrics for electronic verification of their users.
With the change in rules by the Supreme Court, these companies are unsure of the way ahead for verification of a PPI user. Experts opine that with no clear mechanism for online verification, these companies may be forced to shift to an offline model involving physical verification where users will have to submit physical documents which in turn will raise operational costs.
“As the Honorable Supreme Court has barred private entities from accessing the Aadhaar database, we are awaiting clarity on e-KYC for onboarding customers. We already have a physical process of sourcing customers, but a large part of our system was running on the digital platform, which is Aadhaar-based KYC. Depending on the clarification from RBI, we will go back to doing digital KYC or modify our systems as per the directive. In the meantime, we will continue with our physical accountopening process.” said Fino Payments Bank, on how it was dealing with the complex situation.
Switching to an alternate model, whether digital or physical is slated to be problematic especially for small start-ups as they find themselves strapped of funds to direct for becoming KYC complaint in order to participate in interoperability with other similar companies. Implementation of the interoperability norms is also likely to be postponed for these companies till they build an infrastructure that’s in compliance with the KYC norms.
he three-phased guidelines aiming to achieve complete financial harmonization in the digital realm is plagued with inconsistencies which will reflect in its effective implementation. For one, it emphasizes KYC compliance by PPI usersbut is silent on how the KYC norms are to be met, leaving payment companies in an indeterminate state. To add, it remains unclear on the timeline against which companies need to shift to the interoperability model.
To achieve interoperability in a digital financial market as diverse as India’s is no simple task, especially in the lack of a set timeline. Tracing back, it can be seen that RBI’s directive on interoperability was issued for the first time in October 2017 after which the operational guidelines were released last month- over a considerable delay of a year.
While RBI has laid down extensive guidelines, ranging over three phases, it did not set a specific date or timeline by which each of the phases has to be met. Therefore, it would not be wrong to say that it could take years before complete interoperability as envisioned by the RBI becomes a reality. “Only when there is some kind of pressure to meet deadlines, then players in the industry will feel the need to comply aggressively. Till then, its status quo for them as there is nobody to check them”, said a spokesperson of a wallet company who did not wish to be named.
How long exactly it would take before these guidelines are adopted by all industry players is uncertain. Those who are already established in the industry would take somewhere between 3-6 months while new participants could take longer, anything between 6-12 months. With the operational guidelines in place, it is imperative that the central bank looks at strengthening them by laying down deadlines to accomplish the different aspects under it, without which it continues to remain largely on paper.
RBI’s guidelines have adequately outlined the three phases of interoperability but the central bank has not gone into the intricacies of the process to be followed to achieve them. This has left the PPI industry unprepared on how to implement them without any contravention of the same. Technical experts believe that the guidelines should have carried a detailed process which industry players could have followed and some of them are still awaiting the next step. Industry players are also left in a lurch over who they should approach for seeking clarification on the guidelines
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