India’s central bank has finally removed the biggest roadblock for e-wallets

Using phones for a lot more.
Using phones for a lot more.
Image: Reuters/ Abhishek N. Chinnappa
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A major pain point for Indian e-wallet users has been the inability to transfer money between two platforms. A Paytm user, for instance, cannot send cash to a MobiKwik user.

This lack of interoperability is said to have, to a large extent, restricted the segment’s growth.

On Oct. 16, the Reserve Bank of India (RBI) removed that key roadblock.

The regulator issued a new set of guidelines that will, among other things, facilitate money transfer between different digital wallets. Customers can now also send money to gift cards and others’ bank accounts via the government’s Unified Payments Interface (UPI), the Indian government’s instant payment interface.

India has over 49 non-bank mobile wallet companies, all struggling. These norms could give them a new lease of life, boosting the country’s burgeoning e-payments ecosystem which is estimated to grow over five times to $1 trillion by 2023, according to a Credit Suisse report.

How will it help?

Primarily, all kinds of retail and personal payments will get easier.

“Now, a user can look at their wallets as a mini bank account which stores some money, has some value, and can be used to make payments anywhere without the customer exposing their main account, therefore, it also offers security,” explained Bipin Preet Singh, founder, MobiKwik, a wallet firm that has 107 million customers.

This, in general, can provide a major boost to the industry.

“So, if the wallet market grew by approximately 30-35% in the last financial year, you can expect it to grow by five times in the next two to three years,” said Naveen Surya, chairman emeritus of the Payments Council of India (PCI), an apex industry body.

Moreover, mobile wallet companies can also now issue cards in partnership with payment networks like Mastercard, Visa, or RuPay. And with banks removed from this equation, e-wallet can look forward to improved customer ownership.

The new norms are also good news for financial inclusion. “One of the most important use cases for wallets has been remittances,” explained Surya. “But apart from it, these customers hadn’t been relying too heavily on wallets for other transactions due to its limited scope. Now, this will help.”

Not everybody wins

The new guidelines could potentially threaten India’s nascent payments bank sector.

Payment banks are financial institutions that are allowed to perform primary banking functions like money transfers and nominal deposit-taking of up to Rs1 lakh. However, they can’t lend. Firms like Fino Payments Bank and Airtel Payments Bank are already struggling with thin margins and low volumes.

With these new RBI norms, the distinction between digital wallets and payments banks will get further blurred as most of the services they offer overlap.

However, only those e-wallet firms that have put in place KYC norms will be allowed interoperability. Interestingly, the wallet firms had earlier protested against the RBI’s insistence on the KYC norms, saying that this additional layer of documentation can put off a good chunk of customers.

Now that the KYC has been made a stepping stone of sorts for interoperability, compliant e-wallets would be relieved.

At the end of the day, the new norms, first expected in April, may prove to be worth the wait for e-wallets.

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