Interoperability May Pit Payments Banks Against Mobile Wallets

Even as the Reserve Bank of India (RBI) is working on guidelines for enabling interoperability of mobile wallets, payments banks have raised a concern regarding the matter, saying that this may put their services at a disadvantage.

Once the interoperability of mobile wallets comes into effect, one can easily transfer money between wallets. Prepaid cards are also expected to be made interoperable as part of this process.

Full know your customer (KYC) compliance and proper identification of users are essential criteria for the wallet interoperability proposition.

According to an ET report, some payments banks set up by telecom companies have approached the RBI to voice their opposition against wallet interoperability.

“Representatives of few of the payments banks had met one of the top officials of the central bank to express their concerns over how interoperability offered to wallets could directly affect their business models and put them at a disadvantage,” the report cited a senior banker as saying.

Details of when the meeting took place and who was present were not available.

According to the RBI’s Master Directions issued in October 2017, interoperability will be enabled in phases for prepaid payment instruments (PPIs), or digital wallets.

The RBI 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 amongst themselves through Unified Payments Interface (UPI) within six months from the date of issue of this direction.”

Payments banks passed a resolution at their CEO forum in April saying:

“By permitting interoperability, the UPI handle and debit cards, non-bank PPIs will become quasi-banks in terms of payments. They will have a regulatory arbitrage over PBs (payments banks), considering the significantly less capital and other regulatory requirements they have to comply with. We suggest that these facilities should be limited only to banks.”

It is being suggested that these payments banks reached out to the RBI on the basis of the above resolution.

Paytm Payments Bank declined any such meeting and other payments banks didn’t respond to queries, according to the report.

It is being suggested that this might be the reason why the RBI has been delayed introducing the mobile wallet interoperability guidelines.

However, even as uncertainty prevails about how the RBI will respond to the concerns expressed by payments banks, the banking regulator is known to hardly ever flinch in implementing its decisions due to industry opposition.

“Since the RBI has put it out in the Master Directions, it can be expected to come out with the guidelines very soon, perhaps fine-tuning the technical issues around the process,” one banker said.

The industry feels that the concerns of the payments banks are justified because they cannot accept deposits beyond INR 1 lakh or offer loans. “In such a scenario, if wallets get interoperability, they will be able to offer a similar experience to their customer base, thereby causing a severe disadvantage for these banks,” report added.

Payments Banks And Controversies

In the initial heyday of digital payments in India in 2015, 11 applicants were issued in-principle approvals to set up payments banks. The applicants included Airtel Payments Bank, which was later launched in November 2016.

Others who have started their operations since then are:

• The Department of Posts, which started its payments bank in January 2017
• The Paytm Payments Bank started operations in May 2017
• FINO Payments Bank Ltd kicked off in June 2017
• Aditya Birla Idea Payments Bank commenced operations on February 22, 2018
• Jio Payments Bank was launched in April 2018

However, Airtel Payments Bank soon got into trouble in December last year when the Unique Identification Authority of India (UIDAI) temporarily banned Airtel and Airtel Payments Bank from conducting eKYC of customers using Aadhaar.

Reports surfaced at the time that bank accounts of more than 2.3 Mn Airtel customers had been created with over $7.3 Mn (INR 47 Cr) being transferred to these accounts.

As a result of the ban, Airtel was not allowed to conduct e-verification of its telecom customers, nor was it allowed to link customers’ SIMs to Aadhaar during the interim period.

Additionally, the payments bank was barred from opening new accounts using Aadhaar-based eKYC. It was, however, able to open bank accounts through “alternate methods”, if available.

Subsequently, in July, the RBI lifted its ban on Airtel Payments Bank. 

It recently directed Paytm and FINO Payments Bank to stop onboarding new customers with immediate effect.

Reports surfaced that Paytm Payments Bank had stopped enrolling new customers on June 20, following which the RBI carried out an audit. The audit made certain observations about the process Paytm was following to acquire new customers and its adherence to know-your-customer (KYC) norms.

Later, the RBI directed FINO to put in place appropriate processes to adhere to operating guidelines on deposit limits in customer accounts.

With so many regulatory hurdles already stacked up against payments banks, their concerns that interoperability for mobile wallets will affect their remaining business are quite expected.

[The development was reported by ET.]