One small step for mobile wallet, a giant leap for digital payments

For digital payments, the road ahead looks bright. With the RBI’s December 2017 Master Direction on prepaid instruments (PPIs), the secret to success in the digital payments space no longer lies in having deep pockets. In the Master Direction, the RBI laid the groundwork for the interoperability between payment instruments, particularly prepaid ones.

In simple terms, this interoperability will allow users of one wallet to transfer money to a user who prefers a different one.

The RBI has further enabled issuers of PPIs by allowing them to also issue physical cards to their users. These cards would be issued in collaboration with card networks, and could be used like any debit card.

Why this is good news for the wallet user

First of all, the wallet user has a reason to rejoice. Previously, restricted by acceptance, the average wallet user often found themselves juggling money between various wallets. While the local kirana store would only accept payments from one, utility bills would require the use of a different wallet.

Interoperability allows the wallet user to use a service that appeals to them. Whether it’s what the brand stands for, or the user experience they are treated to, the reason for choosing a particular wallet is the user’s alone. The advent of interoperable mobile wallets would also reduce the reliance on cash as a means of transaction, which is after all, the point of it all.

On the other side of the coin, convenience and universal acceptance are among the main reasons why card payments are so popular right now. Wallet players issuing cards to users would play a significant role in increasing the adoption of digitised transactions.

Finally, users would be treated to a variety of additional conveniences such as bill payments, e-commerce, wealth management, investments etc. This would also benefit services providers as they end up with a wider portfolio to offer users.

Why this is good news for wallet services

Straight off the bat, the move by the RBI towards interoperability between PPIs ensures that the playing field isn’t skewed towards bigger players in the industry. Historically, the success of a mobile wallet has hinged on the network of merchants that accept it as a means of payment. Since onboarding new merchants is a capital-intensive activity, big players with the resources to spend on such activities have an immediate edge over smaller competitors.

During the time of demonetisation, India witnessed a surge in the number of digital transactions. However, a lot of the smaller players weren’t able to make their presence felt during this window. Since interoperability automatically opens up avenues for acceptance, smaller players would find themselves more able to compete.

The permission to issue cards also helps with acceptance. So far only banks and payments banks had the permission to issue cards. According to the Master Direction, wallet players can directly partner with card networks and issue chip and PIN-enabled cards to users. This not only adds to the convenience factor, as users can withdraw cash when necessary, it also allows wallet players to increase their value proposition.

Why it’s good for payments in India

It goes without saying that electronic payments would bring about immense positive change in an economy. Cashless transactions are easier to make, easier to process, and most importantly, they ensure a record is always maintained.

In India, only about 12% of transactions happen electronically. The move towards interoperability, particularly facilitated via UPI, is a part of the strong push by the government towards promoting digitised transactions. While cashless transaction numbers are climbing steadily, interoperability is the shot in the arm electronic payments needed. Currently, according to the RBI’s latest data, only 14% of all digital transactions are powered by non-banking players.

The National Payments Corporation of India (NPCI), in its efforts to promote digital transactions has introduced UPI, Bharat QR, Bharat BillPay, and several other services. By facilitating interoperability via UPI, mobile wallet players can join banks in their campaign to digitise transactions. Millions of Indians who previously relied primarily on cash to make payments would now come aboard the digital revolution.

The RBI’s Master Direction doesn’t make it mandatory for players to adopt interoperability. However, the underlying advantages make it hard for players to not come on board. On the whole, the future looks promising. Users would get more value, service providers would find it easier to compete, and the economy benefits from going cashless.

Views are personal.

Bhavin Turakhia is the co-founder and CEO of Zeta, a fintech company that aims to digitise employee benefits, cafeteria solutions, and rewards and recognition solutions.