Challenges ahead for e-wallets, payment gateways as RBI looks to tighten regulations

Prepaid payments instrument (PPI)--e-wallets and payment gateways-- players have a tough road ahead as the RBI seeks to tighten regulations on fund transfer limits and documentation in its draft guidelines.

PPIs are payment instruments that store certain value of money to facilitate the purchase of goods and services, including financial services, remittance facilities, etc.

Wallet players such as Paytm, Mobikwik, Itz Cash Card, Vodafone M-Pesa, Oxigen wallet services, etc and digital payment gateways and aggregators PayU Payments, Citrus Payment Solutions, etc, are some of the well-known Indian PPIs.

Although PPIs are interoperable, which means a PPI can be loaded with balance from another PPI as well, there are strict regulations that limited their use.

For instance, the amount outstanding in a non-bank PPI cannot exceed Rs 1 lakh at any point of time or Rs 20,000 if the customer only provides minimum KYC (know-your-customer) details to the PPI issuing entity.

These shall be converted into full KYC semi-closed PPIs within a period of 60 days from the date of issue of PPI, failing which no further credit shall be allowed in such PPIs.

Amrish Rau, CEO at PayU India said, “Getting the KYC done for the 200 million-odd customers that wallet companies have will be a huge task for the companies as my belief is that only 25 percent of the total wallet users may have their full KYC in place.”

“Fund transfers from such PPIs to bank accounts and also to PPIs of same issuers (and to PPIs issued by other issuers as and when enabled) shall not exceed Rs 10,000 per month,” RBI said in the draft guidelines for issuances and operations of PPIs.

This means that the current limit of funds transfer (for semi-closed and open wallets) between two customers of the same PPI may get reduced from Rs 20,000, said a senior official with a wallet player.

Naveen Surya-  MD, ItzCash and Chairman, Payment Council of India said, “On one hand there is opportunity provided to grow the scope and activities of PPIs i.e. Considering receiving of foreign remittances in PPIs, allowing transfer of money between different PPI issuers by customers and possible access to inter-operable systems and on the other hand overall strengthening of various processes and steps like entry criterion in terms of capital as well as net worth to protect customers and mitigating other risks. However the fine print in terms of limits would need some discussion. On the whole we welcome this well needed and progressive step by the RBI.”

RBI has allowed cash withdrawal at Point of Sale (PoS) terminals to PPIs issued by banks with an upper limit of Rs 2,000 and Rs 1000 in urban and rural areas, similar to debit cards.

Furthermore, RBI has also increased the requirement of networth for such players to Rs 25 crore at all times from Rs 1 crore currently. Companies like Paytm, which have multiple businesses, cannot recognize those as a part of its PPI networth, the draft guidelines said.

RBI is seeking comments till March 31. Final guidelines will be released by April 30, 2017.

The PPIs could be issued as smart cards, magnetic stripe cards, internet wallets, mobile wallets, and any instrument which can be used to access the PPI and to use the amount therein. PPIs in the form of paper vouchers need to be digitized by December 2017, the draft guidelines propose.

Amitabh Sinha, Vice President – Strategy & Corporate Affairs, Sodexo SVC India said, “The guidelines are progressive but there could be some challenges on setting up the digital infrastructure as majority of our meal vouchers are in paper. It would have helped if we got more time…We have already started the electronic process last year…This could open up a possible tie-up with other players.”

The RBI draft also said that the maximum value in prepaid gift instrument should not exceed Rs 20,000 and in case of PPI for Mass Transit Systems it should not be more than Rs 3,000 at any time.

All PPIs will have a validity of one year from its activation date and shall be transparent about the balance of money loaded.

Moreover, in order to curtail money laundering and suspicious activity, the RBI said that all PPI issuers will need to maintain a log of transactions done using the instrument and submit a Suspicious Transaction Report (STR) to the regulator and to the government’s Financial Intelligence Unit (FIU).