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When the Reserve Bank of India (RBI) issued a notification on interoperability of wallets in October 2018, many saw it as a move that will allow fund transfer between wallets. Many anticipated that users will be able to transfer money from, say, Paytm to PhonePe, and vice-versa. But financial technology companies have taken this feature beyond its simple utility and are introducing innovative products that offer convenience to consumers.

According to the RBI notification, the interoperability of wallets had to happen in three stages. One, wallet companies would join the Unified Payments Interface (UPI). Two, wallets would be able to transfer money to bank accounts on UPI, and three, wallet companies will be allowed to issue prepaid Rupay cards.

It’s the prepaid card that fintech firms are using to come up with new offerings in loan and payments space. Let’s take a look at them.

CHOOSE YOUR CREDIT LIMIT AND TENURE

At present only two wallet companies are live with interoperability: Transcorp International Ltd and Transerv Pvt. Ltd, in which Indiabulls Ventures Ltd had acquired a stake. Transcorp International’s model relies on partnering with other companies and offering co-branded prepaid cards and also providing payments infrastructure.

Using Transcorp International’s payment infrastructure, a fintech company for loans EarlySalary recently launched a loan card, which the company has branded as Salary Card; it allows borrowers to set different limits for spends on specific categories.

Say, EarlySalary issues a card to a borrower with 2 lakh limit. The borrower can use the company’s app to set different borrowing limits for hospital, online spends, eating out and so on. The borrower, for example, can set 1.5 lakh limit if the card is swiped at a hospital and 20,000 for shopping online.

The cardholder can also set the tenure for different categories. For hospitals, for example, the individual can choose a tenure of 12 months; for online shopping, six months; and so on. “At present, we have five categories where the customer can use the card. These include shopping, electronics, travel, hospital and medical and insurance and education," said Akshay Mehrotra, co-founder and CEO, EarlySalary.

The company doesn’t charge any processing fess when the borrower uses the card and there are no prepayment charges. The minimum limit for each transaction is 3,000. The interest rates vary with tenure and the company charges a maximum of 28% for a 12-month loan.

The card works like a credit card with more options for the users. If the borrower misses the payment, there’s a bounce charge along with interest on the outstanding balance.

For the first time borrowers can decide the spending limit depending on the end-use, which can help them to limit borrowing for each category. Depending on the interest rate and repayment capability, customers can, for the first time, also choose the loan tenure, giving higher flexibility than the regular loans from banks.

The card also allows the lender, EarlySalary, to know the end use of the funds, which is not possible in a personal loan. The company can use it to provide higher limit and, in future, negotiate with merchants to offer better rates or no-cost EMIs for its borrowers.

ONE CARD FOR ALL PAYMENTS

Another fintech company, Kashware, is using the interoperable wallet infrastructure to develop a card with which users can connect all their debit cards, credit cards and wallets. Instead of carrying multiple cards, the user will need to carry one card from Kashware, and before making the payment, he can select the card which he wants to use.

What happens in the background, is when the person chooses any specific wallet or card, Kashware debits that card or wallet to make the payment. As the card is on the RuPay network, Kashware Kard works on all machines (point of sale terminals), websites, and even ATMs. It is also a National Common Mobility Card (NCMC) and works for public transport (at the metros, toll plazas and others) payments as well.

“Our services—physical card and app—ensures that an individual’s real card numbers are not exposed while making a payment," said Sidhant Ryan Malhotra, co-founder and CEO, Kashware. “The physical card that we plan to offer will be numberless. The card number will only be visible in the app, which further curates all the transactions, offers and rewards from all other payment accounts in one place."

Consumers would not only need to carry one card instead of multiple cards, which offers convenience; they also get better security as the Kashware card is numberless. The company has also ensured that the cardholder doesn’t miss out on any rewards from the issuer.

MOVING AWAY FROM BANKS

The services that the fintech companies are offering could have also been given in partnership with a bank, as banks have always been allowed to offer prepaid cards. “But banks have stringent internal compliances, which take a long time for approval. With a non-bank, it’s much faster to go live," said Mehrotra.

Another problem that fintech companies face when they partner with banks is that the latter owns the customers. Fintech firms only get a commission. If EarlySalary, for example, would have tied up with a bank, the lending would have been done by the bank and the loan would not be in EarlySalary’s books.

“A prepaid payment instrument (PPI) company like ours respect customer ownership. Most banks also have legacy systems and are not flexible in many aspects, as payments are not their primary area of focus. We are able to sign-up with multiple fintech companies in the payments space for flexibility and our low-cost bundled model, which includes licensing and technology," said Ayan Agarwal, vice-president, Transcorp International.

As RBI and National Payments Corp. of India (NPCI) have started bringing wallets on UPI, consumers can expect more such innovations. There could also be a possibility where you add money to the wallet using a credit card and make payment through the UPI, which will make all payments instruments interoperable, experts have shared in the past.

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