Banks to lock horns with non-banks on PPIs

The need for interoperability for prepaid payment instruments (PPI) was felt almost a decade back around 2010, and I say this based on the field experience as one of the earliest licensed players in the country. The priority then was getting the newbie PPIs access to the National Payments Corporation of India so that the basic functionalities of account-to-wallet, wallet-to-account and person-2-merchant type transactions could be initiated to ease loading up, using the wallet to remit-transfer to an account and create traction for the new payment instrument.

This was predicated by banks being heavily invested in PPIs after initially seeing fintechs as interlopers. Now we have come full circle wherein banks and non-banks have both realised that PPIs are not the prerogative or happy hunting grounds of one or other. And there is space for both to survive, even if the standalone business case is not evident or clear cut quite as yet.

The move ideally benefits the fully KYC-ed (know your customer) customer and ones who don't have a bank account. Today a customer can either be banked or non-banked, and avail of this facility. It is a great one for merchants, including those offline (especially micro-, small- and medium-enterprises who can now open themselves up to accept more customers of other wallets and the bank-merchant ecosystem thereby pushing up volumes further.
 

Parallelly, they may find less of a need to integrate all and sundry merchants, and stick to those which give them the maximum upside in terms of economics. The few non-bank PPIs which have some of the best merchant network may be happy to sit back as they roll up more customers from other wallets networks. The losers could be payment banks, and to some extent, universal banks. The former will be pitted head-on with PPIs for a better product design or overall service offering as the value differentiation narrows between them; the latter will be hard done for sponsor bank business churn. So, where do we go from here? 

Mobile-wallet throughput have hit an all-time high this year in terms of both value and volume (6 billion transactions) compared to mere a 0.6 billion in 2016. One can expect the overall business model to improve and also be a genuine convenience for the fully KYC-ed consumer as they don’t have to play hopscotch amongst the myriads of wallets on offer and carry out higher value transactions.

Notwithstanding the disallowance of inward remittances from overseas via the wallet that could be a game changer, there are still some lacunae in harvesting the real benefits of a truly interoperable and frictionless retail payment system. Having a two-speed KYC track still acts as an adoption deterrence to exploit the benefits of full KYC. And it’s time to do away with a dual KYC and artificial restrictions. Pre-registering beneficiaries for transfer of higher amounts to accounts (with only full KYC) creates friction, and such transactions may remain cannibalised by National Electronic Funds Transfer, and Immediate Payment Service—both are much simpler and been around longer. The last bit of still capping wallet transactions for sub-Rs 10,000 still acts as a deterrent to fully exploit the intrinsic attributes of the wallet (low-medium value, high frequency) post interoperability. Not to mention stopping short of having a truly open-loop model (which allows for cash out) under the interoperability regime. 

Finally, non-bank PPIs could truly take on banks by allowing for small interest on balances, a cash-out provision, and a simpler e-KYC method (with customer consent) for all and sundry that will allow for all types of transfers, payments and domestic remittances. This would lead to a clear 10-times growth path in next two years.