Mobile wallets in India are struggling. The numbers from the National Payments Corporation of India (NPCI) suggests that while mobile payment transaction value was Rs 15.9 crores in March this year, the Unified Payments Interface (UPI) transaction value shot up to Rs 1.3 trillion at the same time. This meant mobile wallet apps such as Paytm struggled, while UPI based apps such as Google Pay and PhonePe have been the big gainers. This is why the recent recommendations shared by the Nandan Nilekani led High Level Committee on Deepening of Digital Payments with the Reserve Bank of India (RBI) could give us a good idea of what could possibly be going wrong.
Among the other recommendations, the High Level Committee on Deepening of Digital Payments says that the RBI and the Government of India should target an increase, by a factor of 10, in the volume of digital payments in the next three years. Per capita digital transactions stand at 22 in March 2019 and are expected to increase to 220 by March 2022, according to the committee. This will lead to an increase in the number of users of digital transactions from 100 million to 300 million. What really stands out are the specific recommendations regarding KYC, the know-your-customer verification process, which all mobile wallets need to complete for their users.
Chances are, if you have opened your Paytm app or the Amazon Pay app recently, for instance, there would have been an alert telling you that you need to get physical KYC done for your account to remain fully active. This is because the e-KYC process is valid only for one year, post which the physical KYC is mandatory.
The Nandan Nilekani led High Level Committee on Deepening of Digital Payments suggests that regulations should allow for a No-KYC wallet. At any time, the user of a no-KYC wallet would be able to have a maximum value of Rs 2000 in the wallet, and the monthly spending would be capped at Rs 10,000. This could be one way to re-energize those digital wallets that are lying inactive, for the want of the physical KYC to be completed.
The recommendations also suggest simplification of the KYC rules. The committee says that if a user is opening a second financial account with the same institution, or a sister institution, relaxed KYC norms could be applied. For instance, of you already have a KYC compliant account with a financial institution for instance, a separate KYC for a mobile wallet or payments bank platform offered by the same financial institution can be simpler and limited.
The committee also suggests that if a user is loading money on a mobile wallet app from a KYC-compliant account, they should not be required to complete the complete physical verification again.
Opening a mutual fund account, by funding it from a KYC compliant bank account, while restricting that the folio continues to be funded from, and money refunded into that same account, should also not require extensive KYC, and the verification details should be linked with the compliant bank account.
Till now, e-wallets and digital wallets such as Paytm, Freecharge, Mobikwik and Amazon Pay offered users the option of partial KYC, which meant submitting an identity document (often digitally, such as uploading a scan of an identity document) as proof and confirming that with a one-time password (OTP) authentication using your mobile number. Such as the push for Aadhaar at one stage that every digital wallet company (as did mobile companies and pretty much everyone else, for that matter) used that for authentication and verification.
Two separate developments have meant a new set of rules will now be in place. First, in September last year, a five-member Constitution bench headed by former chief justice Dipak Misra ruled that it was “unconstitutional" for private firms to seek Aadhaar-based authentication. After the Supreme Court verdict, only the government can use Aadhaar for social welfare schemes. At the same time, RBI released the new guidelines that mandated full KYC for all customers. Digital wallet companies now cannot use Aadhaar data anymore, which meant every single customer that has already been verified needs to be re-verified. The emphasis is on offline verification, which means physical verification of identity documents which are then attached to a user’s ID on the platform.
The Unified Payments Interface is an instant real-time payment system developed by National Payments Corporation of India facilitating inter-bank transactions. A lot of apps including Google Pay and PhonePe adopted UPI, since these wallets don’t require separate KYC since they are linked to KYC-compliant bank accounts. The upcoming WhatsApp Pay service will also work on the UPI system, which means its potential users don’t need to run around to get KYC done.