RBI Invites Discussions On The Impact Of Newly Instituted Digital Payment Norms

A month after releasing stricter guidelines on the issuance and operation of Prepaid Payment Instruments (PPIs), the RBI has invited prominent bankers to deliberate over the impact the newly-instituted norms would have on the country’s digital payment sector.

In a move to introduce interoperability between PPIs, the Reserve Bank of India recently brought out a set of revised KYC guidelines to allow customers to move money between digital wallets of different companies and banks seamlessly through Unified Payments Interface (UPI).

As per the new norms, mobile wallets, which have been conforming to a minimum KYC format (such as simple verification of mobile number) are required to convert to full KYC wallet within 12 months of opening it. All existing wallet users will have to convert to the full KYC format by the end of this year.

The norms further dictate that minimum KYC wallets cannot have a balance of more than $153 (INR 10K) and this can be allowed only for the purchase of goods and services and not for remittances to other wallets or bank accounts. Meanwhile, full KYC wallets currently have a cap of $1,531(INR1 lakh) and are fully equipped with all facilities for fund transfer.

For a PPI licence, companies will henceforth need a positive net worth of $765K (INR 5 Cr) at the time of application as opposed to $306K (INR2 Cr) previously.

Commenting on the latest development, a banker in the know stated, “I think the regulator might consider pushing the deadline for bringing all wallets issued under the new rules for semi-KYC wallets, which they have set as December 31 of this year.”

The After Effects Of The New PPI Guidelines By RBI

This comes three weeks after some of the country’s leading digital payment companies joined hands to seek changes in few of the proposed guidelines. At the time, it was reported that the Payments Council of India (PCI), the representative body of PPI issuers in the country, had already written to RBI seeking a hearing on issues they deemed could prove crippling to the still nascent payments industry.

Fearing that some of the clauses of the new PPI guidelines could even make the mobile wallet business unviable, another banker added, “Many banks had issued prepaid cards to those who did not have bank accounts, just after demonetisation to help them deal with the cash shortage. Since they are all semi-KYC ones, with the new rules, even those cards will become unusable in many cases after December 31.”

Incidentally, the PCI had originally welcomed the norms set by the RBI, with its Chairman Navin Surya stating at the time, “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 at par with debit/credit cards in a phased manner.”

The Council even predicted that the RBI’s notifications on PPIs could usher in 30%-40% growth in the country’s digital payment sector over the next five years.

In India, the digital payment market is projected to reach $500 Bn by 2020, contributing 15% of India’s GDP, as per a report by Google and Boston Consulting Group. By integrating interoperability of PPIs, the RBI is looking to make digital transactions a faster, more convenient and reliable option for users. Through the KYC norms, the country’s central banking institution is aiming to curb instances of fraud and eliminate risks. However, some players in the industry fear that the stricter KYC guidelines could stifle the industry’s long-term growth. Whether the yet-to-be-held discussions will help the RBI and digital payment companies reach a resolution remains to be seen.