There was a time when digital wallets were in a rage. The idea of being able to set aside a little money through a bank account or card and make small payments effortlessly sounded great. Then came a unique payment interface and a bunch of regulations, including knowledge of your customers ’requirements, which made wallets a cumbersome proposition. Digital wallets are slowly falling apart.
The Indian Reserve Bank is trying to provide new life to digital wallets, also known as prepaid instruments, with a series of changes announced this week.
Soon, buyers of these wallets will be able to store larger amounts of money – up to 2 lakh, and withdraw cash from them even if they are not connected to the bank. All wallets must become interoperable in order to be able to transfer funds from one to another. Also, non-bank wallets will have access to real-time gross settlement and the National Electronic Fund Transfer, which are the backbone of payment transactions.
Idea, RBI Governor Shaktikanta Das he said, is to help expand the reach of digital payments in smaller cities.
“The move directly benefits non-bank prepaid service providers and fintech firms that have an advantage over banks in terms of their digital capabilities and wallet offerings,” said Ashish Garg, CEO and senior partner at Boston Consulting Group. “It also allows companies that offer wallets (PPIs) to develop use cases for customers who do not want to use their primary online bank account or store their bank account information with any other vendor,” he said.
In a small way, wallets can almost become an alternative to unobtrusive bank accounts, especially in remote rural areas. Almost, because even though they can accept deposits and now give cash, they still can’t pay interest.
“Current and savings account services provided by banks are not suitable for micro enterprises, workers in the category of giants and low incomes due to the requirements of the minimum account balance. But that gap can be filled by digital wallets, which can act as quasi-bank accounts with similar functionalities from zero to low maintenance costs, ”said Vivek Belgavi, partner and fintech leader at PwC India.
In addition, non-banking entities can cross-sell value-added services on e-wallets without the need to open bank accounts, he said. The ability of digital wallets to communicate with the overall payment infrastructure also allows mutual funds, insurers and neo-banks to sell targeted products through the PPI network, Belgavi said.
Sameer Nigam, founder and CEO of PhonePe, agreed.
Making wallets interoperable with the digital payment ecosystem will not only bring customers ease of transactions, but will give them the status of payment system providers previously reserved for banks.
“It allows PhonePe to connect directly to networks like UPI, Visa and Mastercard and improves payment success rates,” Nigam said.
Satish Gupta, CEO of Paytm Payments Bank, said raising the deposit limit to the current 1 lakh could be more beneficial to meet KYC’s requirements for access to the full range of wallet services. The introduction of these KYC norms in 2019 had injured use.
Paytm and PhonePe are among the largest non-bank digital wallets in India.