RBI sets strict norms for digital wallets, allows interoperability
Photo Credit: Shah Junaid/VCCircle

In a fresh set of guidelines for prepaid payment instruments (PPIs), including e-wallets, the Reserve Bank of India has allowed interoperability and introduced stricter Know Your Customer (KYC) norms to prevent fraud and foster competition.

The central bank has set a December 31, 2017, compliance deadline for the new set of rules. All existing wallet users, too, have to convert to the full KYC format by the year-end.

However, the operational guidelines on interoperability will be issued separately, the RBI said in its directive.

With the recent move, customers will now be able to move money between wallets of different companies and banks seamlessly through the Unified Payments Interface (UPI), provided they complete full KYC formalities.

Interoperability shall be enabled in phases for the PPIs, the regulator said. “In the first phase, PPI issuers (both bank and non-bank entities) shall make all KYC-compliant PPIs issued in the form of wallets interoperable among themselves through UPI within six months from the date of issue of this direction,” the RBI said. “In subsequent phases, interoperability shall be enabled between wallets and bank accounts through UPI. Similarly, interoperability for PPIs issued in the form of cards shall also be enabled in due course.”

UPI, which was launched by the National Payments Corporation of India in August 2016, is a mobile-based payments system that facilitates instant fund transfer between bank accounts, without having to divulge details of the accounts. KYC is a process through which financial institutions verify information about customers to ensure services are not misused.

The RBI has also revised the limit of semi-closed PPIs from Rs 20,000 to Rs 10,000 per month. “The amount loaded in such PPIs during any month shall not exceed Rs 10,000 and the total amount loaded during the financial year shall not exceed Rs 1 lakh.”

Besides, the central bank has increased the networth requirements for players in the wallets space. For a PPI licence, companies need a positive networth of Rs 5 crore at the time of application against the earlier requirement of Rs 2 crore. The RBI has also mandated that within the third financial year of receiving an authorisation wallets should have a networth of Rs 15 crore.

“This is the third edition of reforms in PPI. The first one allowed non-banks to participate in regulated payments systems, the second allowed domestic remittance from PPIs to bank accounts. Now, the third edition is laying the foundation for PPIs to become interoperable with all existing payments instruments and on a par with debit/credit cards in a phased manner. This would ensure that PPIs contribution to digital payments from the current share of less than 10% can move to 30-40% within the next five years,” said Navin Surya, chairman, Payments Council of India.

“These guidelines are testimony to the growing influence of digital wallets in the Indian financial industry. RBI’s new norms further enrich PPIs and demonstrate our government’s allegiance to digital payments and commitment to the growth of the industry,” said MobiKwik founder and CEO Bipin Preet Singh. He also felt that the new guidelines could mark the end for payments banks. “Also in my view, the growth of PPIs per these directives will have a corrosive effect on payment banks, as their relevance depreciates further.”

“Clarity on KYC and interoperability to foster collaborative innovation in the eco-system of both banks and non-banks alike. KYC structure and compliance are good for the long-term growth of this industry,” said Bhavik Vasa, chief growth officer, ItzCash Ebix. “Among the positives, we are happy with the Rs 1 lakh limit on PPI. This has a clear intent of moving away from paper vouchers to digital, and is a welcome step in the right direction.”

Vasa, however, said that as an industry “we would like to seek clarity with the regulator and understand better on reasons for a few downward revisions and limits, like minimum KYC PPI limit of Rs 10,000. These may limit our fight against physical cash in the economy, especially when we can buy gold up to Rs 2 lakh with cash in India”.

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