Digital wallet firms in the country have turned down a government proposal to provide insurance to their users, according to people aware of the development.After the union government notified that some high-value notes would no longer be legal tender last November, it mooted a proposal that wallet firms should provide insurance to their users against any misuse of their money, just like various credit card companies do.
Wallet firms, however, have turned down the proposal citing its financial unviability, according to a government official. “The idea was that since people’s confidence in mobile wallets was low from a security point of view, providing some insurance against fraud could address that concern,” the official said, who did not want to be identified. “They (wallet companies) got back to us and said since it is a new line of business, insurance companies are finding it difficult to provide risk assessment and, therefore, asking for high premiums,” added the official.
The proposal was mooted over a month ago by the government and the wallet companies got back with their reservations last week.
Vineet Singh, chief business officer of MobiKwik, told ET that the company was constantly engaged with insurance companies since it is working of a financial services supermarket but disclosing the rates which the insurance firms were asking for covering the users is a “private matter.” He also said that it “too early to say” if the company will offer consumer insurance as an additional part of its offering.
“We reiterate that despite the current growth of the wallets, the user money is safe,” said Singh, adding that maybe cost could have been one of the reasons for the proposal being turned down. The country’s largest wallet firm Paytm did not comment on the story.
Most wallets in the country are currently expanding their market rapidly by pouring money to grow their user base and are incurring huge losses. At such a time, providing insurance to users would be an additional cost overhead for them.
Given the Narendra Modi government’s push towards digital economy, the government is trying to ring-fence popular means of digital transactions against any wrongdoing which can dent people’s trust. Providing user insurance or releasing draft guidelines was one such step in that direction.
Industry watchers are sympathetic to the stance that wallet companies have taken. "Even credit card companies provide it to just a limited number of users. And then also, banks take some liability on their own books and don't pass on the full cost to the insurance company.
So I can see why giving insurance by wallet firms may be unviable given their limited revenue streams,” says Vivek Gupta, partner, BMR Advisors.
Even though the proposal to provide insurance to users did not work out, the ministry of electronics and IT released a set of guidelines for wallet firms, last week, aimed at making transactions through e-wallets safer and to strengthen the grievance redressal mechanism for consumers.
The draft Information Technology (Security of Prepaid Payment Instruments) Rules 2017 which have been released for public consultation by the ministry of electronics and IT cover an entire spectrum such as protecting consumer information, especially financial data.
The rules mandate that each Prepaid Payment Instruments (PPI) company or wallet firm will have a privacy policy posted on its website. It will also have to appoint a chief grievance officer, the contact details of whom will have to be prominently displayed on the website.
The ministry has invited comments on the draft till March 20, post which it will start the process to finalise them.
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