While RBI’s plans to make pre-paid instruments inter-operable via the Unified Payments Interface (UPI) will need some work by digital experts who must put in place the necessary architecture, the move should give digitisation a much-needed boost. Life should become a lot easier for both consumers and merchants once wallets and, at a later stage, wallets and bank accounts become inter-operable. The first phase should be done in six months and, after that, a consumer using wallet A can transfer money to another consumer using wallet B; right now, a Paytm user can transfer money to another Paytm user only. However, if both users have bank accounts, it is hard to see a use-case for wallets since it is simple enough to transfer money between two accounts. Given the potential cyber security risks, RBI has done well to insist all users must be KYC-compliant and, while this could be a costly and time-consuming exercise, it is necessary.
Standalone wallet players might find it that much harder to get consumers to download their apps now since it would involve some amount of paperwork. In other words, with some part of the pre-KYC advantage in opening wallet accounts over, wallet-providers will have to ensure there are other advantages in using their instruments. Non-bank wallets will need to maintain escrow accounts to reflect both merchant and customer transactions as RBI has not waived this rule. A big advantage, related to NPCI-provided Bharat QR codes, is that merchants can now use the same QR code for all wallets.
At a later stage, RBI will allow customers to transfer money seamlessly from a wallet to a bank account. While the new rules could bruise some players, there is no doubt the system as a whole will benefit, much like it did when ATMs were no longer bank-specific but could be accessed regardless of the bank with which a customer had a relationship. As experts say, the volume of digital transactions should grow exponentially. If standalone wallets are to score over bank wallets, the user experience must be superior, and they might need to offer customers something extra. Most large vendors or e-retailers such as Amazon or Uber are unlikely to enter into exclusivity agreements with wallets, whether belonging to a bank or otherwise, so that bait is gone. Inter-operability will force many of the smaller public sector banks to offer customers a better digital interface; but this will be an opportunity, given their large customer base, to compete better.