2 min read.Updated: 03 Mar 2018, 10:32 AM ISTKomal Gupta
Operational issues, Aadhaar-bank account linking and restrictions on money transfers, have dealt a setback to the mobile payments industry
New Delhi: Mobile wallet companies, such as Paytm, Mobikwik, Freecharge and PhonePe, are grappling to get their customers to comply with know-your-customer (KYC) norms, even as the Reserve Bank of India’s (RBI) deadline for completing such verification ended on Wednesday.
Operational issues such as linking of Aadhaar with bank accounts and restrictions on money transfers and loading funds into wallets have dealt a setback to the payments industry, companies said.
“KYC should be a seamless process for the customers. If it requires a paper trail, linking of bank accounts with Aadhaar, then the regulator—before imposing such restrictions for accounts doing only low-value transactions without cash out facility—should be satisfied that there is a genuine problem it is solving," said Ashish Aggarwal, a consultant at the National Institute of Public Finance and Policy.
KYC is a process through which financial institutions verify information about customers to ensure services are not misused.
On 11 October 2017, the RBI issued guidelines directing prepaid payment instruments (PPIs) to complete customer KYC by 31 December 2017. Later, the deadline was extended till the end of February at the request of certain PPI issuers.
Payments Council of India (PCI), the industry body for prepaid payments, wrote a letter to the RBI seeking withdrawal of full KYC for PPIs and also requested to do away with mandatory “unique identification number" of wallet holders up to Rs10,000.
Despite various representations, the RBI has not accepted the demands of the industry. The central bank on Monday said sufficient time has already been given to meet the prescribed guidelines and every payment instrument will have to abide by the KYC norms, as they are also part of the extended banking ecosystem. However, users won’t lose their balance amount even if KYC is not done, it added.
According to RBI guidelines, meeting the KYC requirement is a necessary step to pave the way for interoperability between PPIs, bank accounts and cards in a phased manner.
“We need to distinguish between enabling and mandating interoperability. Mandating could be to avoid ill effects of market capture. Enabling could be to foster competition. If there is a wallet company that does not have a huge share of market transactions or is only doing small value transactions, then we need to ask whether interoperability should be imposed or enabled. One way to enable interoperability is to have objective access criteria to access payments systems," Aggarwal said.
According to Sunil Kulkarni, co-chairman of the PPI committee of PCI, domestic remittances contribute to around 50% of the total PPI transactions." The entire remittance business, i.e. person-to-person transfers, will come to a halt till the time these wallets meet the KYC norms," he said.
Experts fear that the domestic remittance business could revert to banks or unofficial channels, and the e-commerce business would go back to cash transactions.
RBI guidelines mandate minimum KYC for PPIs up to Rs10,000.
Minimum KYC comes with certain restrictions, where the customer will not be able to send money to other wallets or any bank accounts, and not be able to keep more than Rs10,000 in their wallet. The remaining transactions of making online purchases, bill payments or bookings can be done with the existing money in the wallet.
Minimum KYC PPIs account for over 90% of the PPI transaction volumes.
According to RBI data, usage of PPIs reached a new peak in terms of both volume and value in January. The volume of PPI transactions in January was 113.6 million as compared with 99.1 million in December.
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