Sounak Mitra
The Reserve Bank of India (RBI) has extended the deadline for complying with Know Your Customer (KYC) norms for pre-paid instrument (such as e-wallet) providers by another six months. It is but temporary relief for e-wallet operators and no solution to their problems.
RBI had asked mobile e-wallet operators to complete KYC of their users in October 2017. It’s almost a year-and-a-half, and only a fraction has been done. A January 8 story by the Economic Times claimed that more than 95 percent of mobile wallets were not in compliance with the KYC rules.
A six-month extension, or for that matter many more months, may not be enough to get 100 percent of e-wallet users to complete KYC. That’s because the problem for e-wallet operators are different.
First, with the Supreme Court barring private companies from using Aadhaar for KYC, the concept of e-KYC does not exist. The cost of physical KYC is quite high for e-wallet operators in relation to the average transaction on their platforms which is a low amount and declining.
According to RBI data, Rs 16,368 crore were transacted via mobile wallets in December. The total volume of transactions stood at 392.99 million, which was a record high. However, the average transaction was worth Rs 416.48. In November, the average transaction value was 468.45, again down from Rs 509.93 the previous month which was the peak so far.
As a Moneycontrol story pointed out, the cost of physical KYC is estimated at around Rs 100 per person, while it is Rs 10 for e-KYC.
Second, E-wallets became popular when the Indian government banned high value currency notes in November 2016. But once cash came back into the system a few months after demonetisation, a lot of people stopped using e-wallets except for payments of electricity and mobile bills. If there is a sense that the future of e-wallets may be bleak, there is no reason why companies will spend on KYC, unless it’s a customer who uses e-wallets on a daily basis.
Third, the Unified Payments Interface (UPI) that is based on IMPS, or immediate payment service platform, has become a popular alternative to e-wallets because it allows money transfer from one bank account to another bank account which is not permitted on e-wallets. Naturally, people have moved to UPI, and e-wallets are now being used only for specific purposes.
According to National Payments Corporation of India (NPCI) data, there were a total of 672.75 million transactions on UPI amounting to Rs 1.1 trillion in January, up from 151.83 million transactions amounting to Rs 15,571.20 crore a year ago.
A wallet like Amazon Pay is used because of the special discounts and cashbacks that Amazon offers if payment is being made using this instrument while making a purchase.
Fourth, stringent regulation restrict e-wallet operators from accessing the Central KYC Records Registry (CKYCR). Currently, only entities regulated by RBI, SEBI, IRDA, PFRDA, and defined under the Prevention of Money Laundering Act are permitted access. That puts e-wallet operators at a disadvantage to banks and some non-bank companies.
E-wallets are regulated by the RBI, so are the banks. Both would necessarily benefit if access to CKYCR is opened for cross reference. An e-wallet user already has bank accounts, and debit or credit cards which means the customer has already completed the KYC process at least once. If the e-wallets are given access to CKYCR, the entire issue can be resolved without any hassle.
This obviously comes with the risk of consumer data being misused. But then, e-wallets are regulated and the risk is lower when a sector is regulated by the central bank. Also, what is the guarantee that physical KYC documents won’t be shared or misused? If an e-wallet operator can be trusted with physical KYC, why not access to the central database?
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