On April 7, the Reserve Bank of India made several key announcements concerning Prepaid Payment Instruments (PPIs) at the Monetary Policy Committee (MPC) meeting. These measures could potentially impact the banking/FinTech sector and bring about changes in Digitalization and Financial Inclusion.
Interoperability of digital wallets is now mandatory
All full-KYC PPIs and Payment Acceptance Infrastructure must be compulsorily interoperable. Interoperability through UPI among digital wallets was already achieved by RBI back in 2018, but it wasn’t a very widely used method for payment transfer. Now to extend the reach of digital rails, interoperability through UPI or otherwise, has been made a mandatory feature.
Increase in permitted outstanding balance
A payments bank can now raise the limit of the end-of-day balance to INR 2 lakhs (previously INR 1 lakh). This move is to incentivize PPIs to move to a full-KYC structure and interoperability. The new move is expected to encourage financial inclusion of a wider customer base.
Cash withdrawal from digital wallets
Digital wallet holders can withdraw cash from their prepaid wallets at ATMs and/or swipe to pay at retail establishments. Previously, cash withdrawal was allowed only for full KYC PPIs issued by banks. The recent move brings uniformity among PPI players and bolsters the banking infrastructure, particularly in underserved areas. Bringing wallets at par with Bank Accounts in terms of service offering.
RTGS and NEFT enablement
It is proposed that PPI issuers, card networks, White Label ATM operators, and Trade Receivables Discounting System (TReDS) can now take membership in CPS (Centralized Payment Systems) and access Real-time gross settlement (RTGS) and National Electronic Funds Transfer (NEFT). It was previously restricted to banks. This move is expected to improve the services of PPI issuers to their customers and minimize settlement risk.
What does it mean for the Banking sector and FinTech?
Through these recent announcements, the RBI has opened up the extent of Banking services, to larger FinTech players. It is expected that this move will help relieve stress on traditional banks that cater to a wide base with limited legacy technology.
FinTech players can take over the load, offer banking services (except credit offering) on par with traditional banks, and penetrate underserved areas of India. It will further increase the penetration of digital payments in the country especially the Tier-3 to Tier-6 centers. According to RBI, these new guidelines will promote the optimal utilization of Payment Instruments like wallets, cards, etc. as infrastructures such as PoS devices, ATMs, QR Codes and Bill-payment touchpoints are still scarce.
Though banks will continue to handle the crucial aspect of lending, it will be interesting to see how PPIs, wallets, and other payment systems will now compete in the banking ecosystem. It will be an evolving process for Fintech companies who are partnering with the PPI license holders to issue co-branded prepaid cards for providing loans to their customers. The array of services that these FinTech’s offers will diversify and they will be able to ensure user satisfaction by providing Neo-banking-like facilities.
These announcements acknowledge the capabilities of FinTech players and the gaps in the system that they can effectively fill. This is also an endorsement of the enormous potential of the industry. It remains to be seen how payment companies ride this wave, innovate, and offer end-customers seamless payment experiences.
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