The Reserve Bank of India's (RBI's) tough new guidelines for digital wallet companies have left the sector gasping.The Central Bank, in guidelines issued late on March 20, has raised the minimum capital requirement for digital wallet providers by around five times to Rs 25 crore, mandated full compliance with Know-Your-Customers (KYC) norms, and introduced limitations on domestic remittances.
These are among some of the most contentious aspects of RBI's guidelines that digital wallet companies fear could end up choking large parts of their businesses, although the regulator has also opened up new business areas by allowing cross-border inward remittances into mobile wallets and interoperability .
“Payment banks and traditional banks will have an advantage since they have to do KYC anyway , but for stand-alone wallet companies, the cost of acquisition will become higher,“ said Vijay Shekhar Sharma, founder of digital wallet provider Paytm. Sharma has acquired a payment bank licence as well. "If KYC is mandated, there should be unlimited money flow between a KYC wallet to a bank account. The proposed limits could be reviewed,“ Sharma said.
Ketan Doshi, managing director at PayPoint India Network, said complete compliance with KYC norms “could be a show-stopper for entities like us who are catering to migrant population with our remittance and wallet based services“.
As a breather, RBI has allowed digital wallet providers to comply with the KYC requirements within six months of a customer opening an account with them.Another worry is the increased minimum capital requirement for prepaid instrument (PPI) or digital wallet licence holders.
RBI's reasoning for this measure is that fewer than 10 of the more than 50 PPI licence holders in India are active. But the active ones, too, feel threatened.
“If these norms are enforced, we will have to raise fresh funding within the next two years to be able to meet the capital requirements by 2020,“ said Doshi of PayPoint. Industry experts expect that only eight-10 of the existing licence holders will be able to meet the increased minimum capital requirements.
Since RBI is set to permit interoperability among digital wallets and with banks, it would want to make it possible for only the serious digital wallet companies to stay in business to avoid defaults in payments, they said.
“If one wallet user is moving money to another smaller wallet, that company should be a player serious enough to be able to credit his account instantly because the real settlement of funds from the former will take time, hence the higher capital requirement,“ said Jitendra Gupta, MD, PayU India.
Another worrying aspect is the requirement for automatic closing of mobile wallets with zero balance, which would drastically reduce the number of actual users in the records. “There are a large number of inactive wallets with no money in them,“ said Gupta.
“By enforcing this rule, the RBI is all set to weed out those numbers and bring out actual figures around how many wallets are there in the system.“
The regulations also seem to have brought a body blow to the walletbased domestic remittance business with reduction of monthly limit of transaction to Rs 10,000 from Rs 25,000, which industry insiders say would end up clamping down business opportunities for players like Oxigen and PayPoint.
Sameer Nigam, chief executive of PhonePe, the digital payments arm of Flipkart, also said the unintended negative impact some of the clauses may have on the digital wallet ecosystem. “Full KYC is a deterrent, “ Nigam said. “These payment gateways will resist sharing this list with the wallets, “ he said.
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