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New norms may revive fortunes of digital wallets

Users are likely to link UPI IDs with digital wallets so that they can use the balance in wallets for small transactions while tapping savings accounts only for bigger transactions.mintPremium
Users are likely to link UPI IDs with digital wallets so that they can use the balance in wallets for small transactions while tapping savings accounts only for bigger transactions.mint

Digital wallets may regain some ground, with India’s payments body and the Reserve Bank of India (RBI) allowing more flexibility to the digital payment mechanism that lost some relevance following the introduction of unified payments interface (UPI) transactions

Digital wallets may regain some ground, with India’s payments body and the Reserve Bank of India (RBI) allowing more flexibility to the digital payment mechanism that lost some relevance following the introduction of unified payments interface (UPI) transactions.

According to experts, allowing the use of UPI to load money to e-wallets will help make the payment instrument more popular.

“With interoperability coming in, it will become easier to move funds from one wallet to another and make payments. Currently, UPI is only limited to bank accounts, but going forward, wallets will use the UPI channel to ensure interoperability," said Mihir Gandhi, partner and leader (payments transformation) at PwC.

Earlier this month, RBI mandated issuers of prepaid payment instruments to allow interoperability by 31 March 2022. It permitted interoperability through the UPI channel, the homegrown payments network.

This, however, will be limited to customers who are fully KYC compliant. KYC, or know-your-customer, norms allow a financial service provider to verify the identity of the customer. The process of allowing interoperability began in 2017 when RBI laid down a road map, followed by issuing of guidelines in 2018 enabling interoperability, albeit on a voluntary basis.

“To incentivize the migration of prepaid payment instruments (PPIs) to full-KYC, it is proposed to increase the limit of the outstanding balance in such PPIs from the current level of 1 lakh to 2 lakh," RBI said on 7 April.

Wallets had lost favour when the National Payments Corp. of India (NPCI) introduced UPI in 2016, a quick payments network that allowed customers to transfer funds between bank accounts. Electronic wallets, which need to be first loaded with money from bank accounts and then used, did not seem that convenient to customers.

In FY21, customers used e-wallets for 4 billion transactions worth 1.52 trillion. The volume of UPI transactions in the same period was 22.3 billion, valued at 41 trillion, showed data from RBI.

Gandhi said there will be an uptick in usage for some of the wallets if it is easy to load money through UPI. “It is expected that wallets will be used for person-to-merchant transactions where there is convenience and some rewards to the customer. The new rules will lead to more wallet transactions at merchant outlets where the customer can use UPI to pay for goods or services, either offline or online," he said.

On 26 May, ICICI Bank said it became the first lender to add this feature for its wallet—Pockets. The private lender said it has collaborated with NPCI to allow linking its digital wallet to UPI. Bijith Bhaskar, head of ICICI Bank’s digital channels and partnership, said in a note that internal research suggests users are keen to link UPI IDs with digital wallets so that they can directly use the balance in wallets for small transactions while tapping their savings accounts only for bigger transactions.

“This initiative will democratize access to UPI and make it ubiquitous with digital payments by allowing consumers to pay through digital wallets, in addition to the facility of paying from bank accounts," Praveena Rai, chief operating officer of NPCI, said on 26 May.

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