Mobile wallets play an active role in our day to day monetary transactions. It facilitates and makes payments easier and through the medium of internet. Mobile wallets now hold a crucial part in the financial sector and it is developing at a rapid pace.
There are several wallet service providers like PayTM, Phone Pe, Mobikwik etc however, there is no interoperability amongst these wallets which results in blockage of funds in one wallet or other. The Reserve Bank recently released operational guidelines to facilitate payments among prepaid instruments (PPI) such as mobile wallets, a move aimed at promoting digital transactions. The guidelines elaborate on requirements for achieving inter-operability for mobile wallets and cards, and norms for customer protection and grievance redressal.
What is interoperability?
Interoperability is a technical term that enables a payment system to be used in conjunction with other payment systems. Interoperability allows Prepaid Payment Instrument Issuers, System Providers and System Participants in different systems to undertake, clear and settle payment transactions across systems without participating in multiple systems.
What is PPI and Mobile Wallets?
Prepaid payment instruments (PPI) are those which facilitate purchase of goods and services against the value stored on such instruments. The value stored on such instruments represents the value paid for by the holder, by cash, by debit to a bank account, or by credit card.
Mobile wallet is a virtual wallet which keeps the payment card details with itself facilitating cashless transactions through a mobile. It is a type of an e-commerce model which facilitates making payment. It enables the user to pay or receive the payments through a mobile device.
Circular by the Reserve Bank of India on Interoperability
- PPIs are issued in the form of wallets, interoperability across PPIs shall be enabled through Unified Payment Interface for security reasons. Authentication will be completed by the PPI holder as per his / her existing wallet credentials. In other words, a transaction will be pre-approved before it reaches the UPI. PPI issuers shall act as Payment System Providers (PSP) in the UPI.
- The interoperability shall be facilitated to all KYC compliant PPI accounts and entire acceptance infrastructure.
- PPI issuers shall adhere to all the requirements of card networks / UPI including membership type and criteria, merchant on-boarding, adherence to various standards, rules and regulations applicable to the specific payment system such as technical requirements, certifications and audit requirements, governance, etc.
- The new guidelines also mention that the interoperability rules will enable wallets to issue debit cards through UPI and card networks such as MasterCard, Visa and RuPay.
- All PPI issuers intending to implement interoperability through UPI and / or card networks shall adhere to the instructions contained in these guidelines. PPI issuers operating exclusively in specific segments like Meal, Gift and MTS may also implement interoperability.
- It further said card networks are allowed to onboard PPI issuers to join their network. Non-bank PPI issuers are permitted to participate as members/associate members of authorised card networks.
Impact of interoperability of mobile wallets
The rapid development of the Indian mobile wallet market demonstrates the importance of reactivity and adaptability. Huge opportunities await those who can successfully navigate the transformative impact of regulation, emerging technologies and shifting consumer expectations. For this reason, the ability to collaborate and learn lessons from players across the world remains as important as ever. The RBI data showed mobile wallet transactions for August 2018 stood at 340.65 million in volume and Rs 155.73 billion in value versus 325.18 million transactions totalling Rs 152.02 billion in July. This was a rise of 5 per cent in volume and 2 per cent in value. On the other hand, UPI transaction volume in August jumped by 30 per cent to 405.87 million in volume from the previous month, according to the NPCI data. The value of UPI transactions during the same period grew by 10 per cent to Rs 598.35 billion.
How wallet interoperability will change the payments game
- Allow transfer from one wallet to another through UPI
- Allow transfer from wallets to a bank also through UPI
- Wallet companies can now issue cards
- Wallets don’t need to partner with banks for UPI and card issuance
- Will boost digital payments, improve financial penetration
Mobile wallets have seen a rocky path during the year and saw a dip in volume and value in March 2018 as the central bank’s strict KYC norms came into place. While wallets bounced back subsequently through cashbacks and numerous retail partnerships, the fierce competition from UPI apps led to numerous players looking at alternative business avenues. The move will enable transfer of funds seamlessly between various mobile wallets. It will boost companies and create a level-playing field between mobile wallets that operate without payment bank licences and payments banks.