Digital Payments Could Grow By 40% In Five Years: PCI On PPI Guidelines

The Reserve Bank of India today announced revised guidelines on the issuance and operation of Prepaid Payment Instruments (PPIs). In the light of the RBI’s notification for PPI, the PCI (i.e. Payments Council of India) has predicted that digital payments in the country could increase by 30%-40% in the coming five years.

PCI is the representative body of PPI issuers operating in the country. The guidelines in question have come into effect from today and the issuers of PPIs will have to comply with these rules on or before December 31, 2017, expect for a few other cases specified.

Welcoming the guidelines set forth by the country’s central banking institution, Payments Council of India Chairman Navin Surya said “This is the third edition of reform in PPI, first one came with allowing non-banks to participate in regulated payment systems, the second one came which allowed domestic remittance from PPIs to Bank Accounts. This third edition is laying the foundation for PPI to become interoperable with all existing payment instruments and in par of acceptance of debit/credit cards in a phased manner.”

The newly-instituted guidelines, Surya believes, would increase the contribution of PPIs towards digital payments from the current share of less than 10% to around 30%-40% within the next five years. He added, “We thank the RBI and their team for laying this foundation and we at PCI would work closely with them to achieve the common objective of driving ‘Less Cash in India’.”

With increased access to smartphones and the Internet, digital transactions in India have undergone dramatic growth in recent years. The launch of the digital stack has resulted in higher domestic remittance limits and allowance of international inward remittance. This has, in turn, enabled players in the space to digitise retail payments which until now were done primarily through cash.

One of the biggest issues with digital payments, however, has been the fact that a mobile user wallet of Paytm can only transact with another Paytm user and not with a MobiKwik or a FreeCharge user. This is where PPI interoperability comes in. With the new guidelines by the RBI in place, interoperability of wallets will soon become possible, allowing users to transfer money between wallets.

Commenting on the development, Sunil Kulkarni, Co-chair of the PPI committee of PCI stated, “A graded structure of PPI has been created where more features/services  are enabled with better customer information (KYC) taking a view on the risk associated with the service.”

Praising the regulator for taking a progressive step geared towards bolstering the country’s digital payments sector, Sriram Jagannathan, VP Payments of Amazon India, said, “We welcome RBI’s provisions towards interoperability of PPIs and opening up cross-border remittance participation. We are delighted to see the continuation of the minimum KYC wallet below $153.7 (INR 10,000) which encourages customers to choose the convenience of digital payments instead of cash. This allows us to provide a fast, reliable and convenient digital payment experience.”

While the guidelines have been positively received by most companies and stakeholders in the space, some have raised concerns about some of the KYC norms. For instance,  even the low usage wallets with limited merchant transaction functionality are required to do a KYC beyond 12 months. This could cause inconvenience to customers and higher costs for the issuer.

Sharing his views on the subject, Jagannathan said, “We urge the regulator to re-examine this in line with international guidelines, and adopt a framework of proportional KYC.”

The latest development follows the RBI’s announcement last week that interoperability amongst KYC compliant PPIs will be implemented within six months of the date of issuance of the revised Master Directions.

Within days, the country’s central banking institution also released the official guidelines for non-banking financial companies (NBFCs) engaged in P2P lending in the country. It has also increased the net worth requirements for players in this space.

For a PPI licence, companies need a positive net worth of $765K (INR 5 Cr) at the time of application against $306K (INR2 Cr) previously. This has to be $2.3 Mn (INR 15 Cr) within the third financial year of receiving RBI authorisation.

In India, the digital payments sector is projected to reach $500 Bn by 2020, contributing 15% of India’s GDP, as per a recent report by Google and Boston Consulting Group. The newly-instated guidelines for interoperability between different PPIs are aimed at further bolstering the sector by making digital transactions a swift, convenient and reliable option for users.