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Last Updated : Oct 25, 2018 06:51 PM IST | Source: Moneycontrol.com

How RBI's move will affect wallet-to-wallet transfers

The move is expected to boost mobile wallet transactions in the coming months as interoperability among digital wallets will allow ease of transactions

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The Reserve Bank of India (RBI) recently issued guidelines to allow interoperability for mobile wallets that are know-your-customer (KYC) compliant.

The move will enable the transfer of funds seamlessly between various mobile wallets such as Paytm and PhonePe, boosting companies and creating a level-playing field between mobile wallets that operate without payment bank licences and payments banks.

Here's how the RBI's move will affect wallet-to-wallet transfers:

The move is expected to boost mobile wallet transactions in the coming months as interoperability among digital wallets will allow ease of transactions. It will allow a user to transfer money from one wallet to the other in seconds. For instance, a user can instantly transfer money from his/her Paytm wallet to Mobikwik wallet. Read | Payment Interoperability: Paving the way for inclusion

The industry is witnessing a change in customer preference, where cards are not the form factor of choice for electronic payments and are being replaced by the mobile phone or biometric payments.

While the traditional banks have seen moderate success with their own mobile wallets, and the Unified Payment Interface (UPI) is seen as a turbo boost, allowing interoperable payments using a simple unique identifier known as virtual address.

According to RBI data, wallet transaction volumes rose to 340.65 million (in volume) in August from 225.43 million in August last year. The data shows that wallet transactions continued to rise even after RBI introduced KYC norms.

Read — Editor's Take | RBI allows e-wallet interoperability

KYC is a process through which banks and other financial institutions obtain and verify information about a customers’ identity and address to ensure services are not misused.

While operational guidelines on interoperability will be issued separately, it is clear from RBI's direction that the onus lies on KYC compliance.

This means that the central bank may have to update its KYC guidelines for entities such as banks and prepaid payment instruments (PPIs) issuers as the current guidelines emphasise on Aadhaar-based KYC, Mint reported.

Also see | Interoperability of mobile wallets: Everything you need to know

On September 26, the Supreme Court had struck down Section 57 of the Aadhaar Act, barring private companies to insist on Aadhaar details of customers. After the verdict, these firms stopped Aadhaar-based authentication and now they do not have clarity on an alternative available to them.

The verdict also affected telecom operators and wallet companies that had been using the biometric database for instant electronic verification of their subscribers.

Experts believe that verifying customers online without accessing the Aadhaar database would mean returning to the offline model, in which a user submits physical documents to the company, the latter ships it to the verification centre and then the verification centre calls the customer to cross-verify details.

Read: Digital payment revolution can get a push with right infrastructure and technology

While interoperability of mobile wallets is likely to boost use of digital wallets, the PPI industry is still not clear on procedure for implementation of interoperability.

The requirements to enable interoperability in different phases have been outlined clearly, but the exact process to go about it is yet to be put forth.

The central bank said interoperability shall be enabled in phases for PPIs issuers. While interoperability among wallets will be the first phase, the regulator will allow fund transfers between bank accounts and wallets through the UPI platform in subsequent phases, RBI guidelines stated.

The move may, however, make it harder for small and mid-sized companies to sustain in the field owing to capital expenses.
First Published on Oct 25, 2018 09:08 am
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