Will more rules stifle mobile wallets and prepaid instruments?

Over the last few years, transactions of prepaid payment instruments has more than doubled, both in terms of volume and value

New Delhi: Mobile wallets and prepaid instruments will continue to grow at a rapid pace even if the Reserve Bank of India (RBI) goes ahead and reviews the ongoing regulatory regime for prepaid payment instruments (PPIs), according to companies in the prepaid instruments space and analysts.

In its Vision 2018 document for Payment and Settlement systems in India, released last month, RBI had hinted at a tighter regulatory regime. “..with growing use of PPIs, the initial forbearance given on KYC requirements, customer-facing aspects such as safety and security, risk mitigation measures, complaint redressal mechanism, forfeiture of un-utilized balances, fraud monitoring and reporting requirements, etc. will merit a review,” it had said.

Over the last few years, usage of PPIs has increased manifold, both in terms of volume and value. In fact, last year, both in terms of volume and value, the transactions more than doubled. While the volume increased to 747.96 million in 2015-16 from 314.5 million in 2014-15, the value also increased to Rs.49,015 crore from Rs.21,190 crore.

Mobile wallets, PPI cards and paper vouchers come under the overall grouping of PPIs, though paper vouchers constitute a very small component.

This rapid growth in these payment instruments could explain RBI’s cautious approach.

“Wallets have become popular in the last three years due to three things—convenience, security and control. It reduces the transaction cost required in banking and hence are popular,” said Kiran Visareddy, senior vice-president at Paytm. “Paytm has always been successful in complying with RBI’s regulatory guidelines. In fact, it is the only wallet which has got a payment bank license. As of now, no changes are required in our regulatory framework,” he said.

“Wallets will continue to surface due to it being part of digital money as well as catering to the unbanked population,” he added.

Naveen Surya, chairman of Payment Council of India and managing director of Itzcash, said that the regulatory regime is unlikely to see further tightening. “The regulatory regime by RBI does not need further tightening. What is needed is standardisation of rules for everyone, whether the person is a biller or a merchant,” he said.

At present, KYC varies from one PPI to another. The minimum KYC requirement for mobile wallets is verification of the mobile number with a one-time password. Typically, purchasing a closed prepaid card—like a gift card which can be used only at select outlets—also does not require any KYC.

In order to upgrade wallets to full KYC status, documents such as ID proof and address proof will have to be verified.

Some wallets do the full KYC verification process on their own too, in addition to consumers already providing the KYC to their respective banks, said Bipin Singh, founder of Mobikwik.

“Paper based KYC can never have uniformity as all documents differ. E-KYC method should be used but unfortunately, it has not picked up due to huge costs associated with setting up the biometric system everywhere,” Singh said.

Wallets have continued to grow in the last three years both in terms of the number of transactions as well as value. In terms of the number of transactions, they have left prepaid cards behind but the trend reverses when we take the value of those transactions into account.

Apar Gupta, an advocate dealing in laws related to technology, media and telecom, said that the RBI is looking for a standardized regime and not necessarily a stricter regime.

“There are ambiguities regarding how monitoring will take place. For instance, all m-wallets need to be registered with authorized banks and also comply with RBI regulations but wallets as well as other prepaid instruments are of different kinds—semi-closed, closed and open. For closed instruments, RBI authorization is not required but for semi-closed and open, it is mandatory. Such uncertainties will have to be removed while revising the guidelines by RBI,” said Gupta.