We are just days away from the August 31 deadline for the Know Your Customer (KYC) compliance for mobile wallets. According to the Reserve Bank of India (RBI) guidelines that became applicable in March, every mobile wallet, except the ones that solely rely on the Unified Payment Interface (UPI) for transactions, need to do the KYC for all users. The wallets are now formally called prepaid payment instruments (PPIs). This means the likes of Paytm and Amazon Pay will have to comply with the new guidelines. That leads us to the big questions—what happens to your mobile wallet account as we roll into the next month?
Over the past year and a bit more, e-wallets and digital wallets such as Paytm, Amazon Pay, Airtel Money, Freecharge, and Mobikwik had the option of partial KYC, which meant users could upload an identity document as proof and confirming that with a one-time password (OTP) authentication using the registered mobile number. Such was 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. But the RBI guidelines state that the eKYC or partial KYC is valid for a period of one year. Post that, mobile wallet companies need to re-do the KYC for its users, in person. Not doing the KYC again would mean the functionality of the wallet will be restricted or completely disabled.
This means physical verification of the person’s documents. Now that can be a painstaking process. Just Paytm has more than 350 million registered users in India, as of June. “Wallet services provided by Paytm Payments Bank are governed under the RBI guidelines of pre-paid instruments. These guidelines require that for issuing Wallet to customer Minimum KYC must be completed. Further, Minimum KYC is valid for 18 months. For using Wallet beyond 18 months as well as for availing complete benefits of Wallet, Full KYC needs to be completed,” says Paytm.
What happens if your wallet isn’t Full KYC compliant?
Once the eKYC or partial KYC or minimum KYC validity expires, you may be left with a wallet app that either restricts use or blocks you out completely, depending on specific policies. “After expiry, you will not be able to add money to your wallet or transfer the balance amount to your bank account. You can however continue to use your existing wallet balance for making payments at 12 Million+ merchant outlets as well as online payments on apps/websites accepting Paytm,” says Paytm’s policy on the matter. Users will also be able to use Paytm for UPI transactions in such a scenario.
If you are an Amazon Pay user, the policy states that you won’t be able to add money to the Pay wallet till the full KYC process is completed.
Most wallets also take the pains to clarify that they are no longer accepting Aadhaar card as a valid KYC document, and instead are willing to accept other identity documents including a voter ID card, passport and driving license.
Freecharge, another digital wallet said in a notification earlier this year, “Full KYC involves submission of a valid Proof of Identity & Proof of Address with in-person verification.” The company goes on to clarify that “If you do not complete Full KYC, you will not be able to Add Money in Freecharge Wallet or withdraw money from Freecharge Wallet. However, you can use an existing Wallet Balance for Merchant transactions.”
The need for the Full KYC process, again
Two separate developments meant the new regulations had to be put 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, meaning physical verification of identity documents which are then attached to a user’s ID on the platform.
Putting mobile wallets at par with payments banks?
These specific guidelines for complete KYC come as part of the larger group of new rules which the RBI has mandated mobile wallets have to follow—this includes how every SMS being sent out to notify a transaction to a user must have a contact number to immediately report fraudulent transactions, all mobile wallet companies must have a round the clock helpline number to report fraudulent or any other issues with transactions done from their account and that the mobile wallet companies are now liable to refund the entire amount of a fraudulent or incorrect transaction within three days of the transaction being reported.
The tedious process
If you are someone who uses digital wallets to make transactions and payments regularly, or use mobile wallets for payments on apps including Uber, Zomato, Swiggy, Bookmyshow and more, the KYC process becomes all the more important for you. But anyone who may be using digital wallets for occasional payments may find the entire process too cumbersome and time-consuming to be troubled with. And mobile wallet companies are worried about exactly this.
UPI gets an advantage?
This is where Flipkart’s PhonePe wallet, Google Pay and the upcoming WhatsApp Pay have an advantage, since they rely on UPI for transactions. The Unified Payments Interface (UPI) was developed by the developed by National Payments Corporation of India (NPCI) and launched two years ago. The UPI is a method for transferring funds between two different bank accounts, without the need for any credit or debit card. Since this is an account-to-account transaction, the KYC and necessary verifications for each account are already done by the respective banks.
This is one reason why Amazon is now pushing UPI for Amazon Pay, having made the feature available to Amazon app users on Android phones. “UPI clocked whooping 672 million transactions till last month. This clearly indicates that UPI has changed the way people look at money. We can see the paradigm shift in consumer behavior, moving towards digital payment alternatives than cash-based transactions,” says Rahul Kothari, Chief Business Officer, Enterprise Business, PayU India.
The WhatsApp Pay challenge
It is expected that WhatsApp Pay will roll out in India before the end of the year. The service is already being tested with a rather elaborate sample size of 1 million users. "When I look out at all the different ways that people interact privately, I think payments is one of the areas where we have an opportunity to make it a lot easier, that’s among the most important things that we can do here," Mark Zuckerberg, the CEO of Facebook had said about WhatsApp payments at the F8 conference in the summer. The company also submitted to the Supreme Court of India that they would fully comply with the Reserve Bank of India (RBI) guidelines for payments apps, including the data localization norms. At present, WhatsApp has over 400 million active users as of July, and counting. As Facebook says, “sending payments will be as easy as sending a message”. Expect a lot of online and offline retailers to accept WhatsApp Payments as a standard for paying for your purchases too, and you can pretty much envision this becoming the default app for most of the digital payments you make, if not all.