By Preeti Pandey
Over the past few years, India has seen an exponential growth in the number of players in the e-wallet industry. Paytm, Mobikwik, and others have ruled the online transaction market.
In October 2017, the Reserved Bank of India (RBI) revised its guidelines for pre-paid instruments (PPI) and e-wallets. According to the new guidelines, the net-owned fund of wallet operators will be increased from Rs 5 crores to Rs 15 crores in the next three years, and the existing wallet issuers must comply by March 2020. RBI is also contemplating wallet-to-wallet and wallet-to-bank account interoperability via the UPI infrastructure.
With India moving towards a digital-first economy, this is a welcome move by regulator by offering an interoperable ecosystem, R. K. Gupta said, the Hindu reported.
E-wallets provided users with a hassle free, and easy-to-use means of transferring money online. This led to e-wallets becoming one of the fastest growing segments of the e-commerce industry. Most of the wallets that were issued, used the user’s name and mobile number to transfer money, which is sometimes referred to as the limited KYC norm.
However, e-wallets’s increasing popularity spurred the RBI’s decision to make KYC (Know Your Customer) norms mandatory for users of mobile wallets. The KYC process allows financial institutions to verify a customers identification and biometrics information. However, according to various companies, the KYC process deterred customers from using e-wallets. Several mobile wallet entities requested the central bank to withdraw or relax its ruling on KYC regulations. However, RBI refused to reconsider and chose not to extend the KYC deadline, which was set for February 28, 2018. The new guidelines mean that unless the KYC process is completed, mobile wallet users will be unable to add or receive any money.
This (rejection) is going to be really disheartening, as the deadline for submission of KYC has come during Holi, a time when remittances are the highest. A large percentage of wallet users for remittances are people with blue-collar jobs, taxi drivers and daily wage labourers, among others,” Payworld operations head, Praveen Dhabhai said, Business Standard reported.
His concerns were real, as most people didnt recognise the depth of the situation, and neglected to adopt the KYC procedure, as a result of which, as of now, only 10% of e-wallet customers have been registered under the KYC norms.
We have not even managed to finish 50 percent of the customers KYC, an unnamed senior executive at an online wallet company told Moneycontrol. There is no motivation for the customers to do the KYC, theyd rather prefer to go back to a convenient option of cash than do the documentation.
In December 2016, Indias top digital payment company Paytm, reached 100 million downloads on Google Play. In January this year, the e-wallet industry reported a 14% growth with 113.6 million transactions. A recent study by Google and Boston Consulting Group pointed out that India has recently seen a 50% year-on-year growth in digital transactions.However, RBIs strict regulations served a severe blow to the digital payment industry. The new guidelines could likely even lead to digital transactions once again being replaced by cash-based transactions, which in turn would ultimately defeat the purpose of demonetisation.
Many e-wallet companies are now looking for alternative ways to enhance their market presence and avoid losses. Major e-commerce companies, including Paytm are now focusing on B2B rather than B2C, since the former has turned out to be more profitable, as the cost of acquiring customers is negligible.
Paytm is focused on its B2B corporate digital meal voucher programme, Food Wallet, through which payment for food and beverages can be made on-the-go by corporate employees. Paytm is also providing other services like gift wallets, fuel, and communication wallets. The company reportedly claims to be experiencing 50% month-on-month growth with the new venture, and has already established tie-ups with around 500 companies across India.
The Mobile Wallet (TMW), which is a Mumbai based e-commerce platform, is now entering into SME and retail lending. “We had been focusing on alternate business for quite some time. We expect all the three segments of business contributing equally to the total revenues in the next six-eight months,” Vinay Kalantri, Founder of TMW, said.
Meanwhile, Mobikwik has launched an SaaS-based employee benefits and reimbursements programme.
The RBI’s decision to not relax the KYC regulations has led many companies, like PayU and Citrus, to decide to quit the e-wallet business.
Experts reportedly say that the situation may lead to a 30% fall in transactions. Around 80% of the total e-wallet transactions, nearly Rs 12,000 crores, may also likely revert to cash transactions.
This is actually de-digitsation by RBI. Now, of the Rs 14,000 crore (monthly wallet business) Rs 12,000 crore is at risk. For the next one year, the growth of the wallets will definitely under huge stress,” a senior executive at the Payments Council of India said.
The future for e-wallets and the digital payments sector in India is uncertain. Since India has always been a cash-dependent economy, there is always the possibility of people likely falling back on old habits, and returning to cash transactions.