Towards Digital Currencies – Payment Wallets

Prime Minister Narendra Modi in his recent Mann Ki Baat urged people, especially those from the lower income category like the labour class, to use e-wallets as a step towards cashless transactions. The nation cannot jump into a cashless economy overnight. It is not desirable either, according to economists and policy makers. But enhancing the use of bank accounts, e-wallets and payment banks are all legitimate steps in this direction.

Thanks to the Demonetisation move, there is an increased need for all forms of cashless transactions like online payments, credit card and debit card payments, and more significantly the emerging and rapidly developing concept of payment wallets. The payment wallet is an off-shoot of the word 'digital wallet' meaning an electronic device which facilitates a person to do an e-commerce transaction by making a purchase through his computer or more popularly, using his smart-phone.

E-Wallets: In e-wallets, procedurally, we create a payment wallet account with one of the payment wallet institutions like Paytm or with the app of the Public Sector Bank, SBI (State Bank of India0 or other such banks and institutions, through an online process using the mobile phone. After creating a user name and a password, money can be transferred to this account from our existing bank account through our debit card or credit card or Internet Banking.

Now, this user account with this wallet becomes a small bank account with a balance to the extent transferred by us. From this purse ie e-wallet, we can make online payment for any transaction to the seller/vendor who has a payment wallet account, by simply logging in and with the security features like our password etc. Typically, the payment wallet is used for making small payments as at the petrol pump, mobile phone bills and other such small payments. In simple words, a payment wallet is a virtual (non-physical) money purse with the facility for pre-loading it with a certain sum of money transferred from an existing banking account to enable spending online at a listed merchant establishment.

In India, it is interesting to note that the e-wallet has captured the consumer psyche rapidly and phenomenally, with its growth surpassing that of credit cards in terms of the number of users. The most popular Payment wallet in India, Paytm alone claims user coverage of more than 20 million active users, which is astonishingly higher than the cumulative number of credit cards in India. Besides the private players in the field like Airtel, Freecharge, Oxigen, Muthoot, Mobikwik, DigiSecure, and Ideamoney, we have public sector bank owned payment wallets like State Bank of India Buddy. In the case of most of the payment wallets, we can transfer money to those who hold account with the same wallet, or make payments at merchant establishments, who are authorised to accept from that particular account.

Regulations: The banking regulator, Reserve Bank of India (RBI) granted in-principle approvals in August 2015 to 11 entities for setting up payments banks (PBs), and 10 for Small Finance Bank (SFB) in September 2015. RBI has allowed payments banks, promoted by the telecom companies, to open accounts for mobile phone users with the help of the Know Your Customer (KYC) forms available, provided the account is already KYC-compliant. RBI has stipulated guidelines on Capital Adequacy, Liquidity and other investment related conditions for the payment banks, to ensure their conformance with the nation's financial structure; for example, they cannot lend or take deposits of more than Rs.1 lakh etc. Payment Banks and Small Finance Banks also follow the nomination procedures as applicable in the banking industry.

Unfortunately, though the UPI was termed to be a game changer when it was introduced by RBI through its National Payment Corporation of India, it has still not gained the popularity that it deserves. Despite the convenience of not having to enter the IFS Code and the beneficiary's account details, to complete the transfer process in a few seconds, we find that many banks are yet to introduce it. A few banks have already introduced the system and many are reportedly testing it and it is expected to gain popularity in the days to come.

In these days of heavy cash currency crunch, there is an increasing need for payment banks and e-wallets. Some of the popular apps used for transfer of money from mobile phones are Airtel Money, Axis Bank Lime, Citrus Pay, Freecharge, mRupee, Paytm, SBI Buddy, Vodafone mPesa etc. While some of these are only mobile apps, some have the additional feature of enabling transfer through UPI also.

Security: From a security and risk perspective, a payment wallet or an UPI is certainly safer because we only transfer amounts from our existing bank accounts to these payment wallets or the respective banks, and hence at any time, our exposure or risk is only to the extent of money so transferred by us, which is usually just a few thousands rupees only. Besides, the bank account details are not revealed, so also with the account number and password. And above all, the entire process goes through Indian servers and within the overall regulatory mechanism of Govt of India and RBI guidelines and procedures.

It is predicted that in the future, India too will facilitate payment wallets tagged to our health records, licence records and other such personal details and enable placing an order for medicine, based on our health records, as is done in many other nations like the US, Japan. Currently in India, we have simple payment wallets or what may be known as the first avatar of digital wallet and their usage is increasing phenomenally, especially in the aftermath of demonetisation.

RuPay: Globally, Visa and Master are the two leading giants in Card payments and gateways, accounting for almost the entire market. Any inter-bank ATM transaction (ie. a customer holding the ATM / Debit Card of X Bank drawing money from the ATM of Y Bank, both being Indian banks too) is processed at the Visa or the Master ATM switches, depending on whether it is a Visa card or a Master Card. This involves exposure of the data to a non-Indian entity, besides payment of processing and other charges in US dollars. RuPay is an Indian domestic card scheme conceived and launched by the National Payments Corporation of India (NPCI), as India's own domestic product, competing with Visa and Master. In the past two years, many of the public sector banks are issuing RuPay cards and renewing the existing Visa and Master with RuPay cards only. Adding to the prominence of the RuPay is the fact that all accounts started under the Pradhan Mantri Jan Dhan Yojana scheme have been given RuPay cards. According to NPCI, the freshly issued credit cards in India are going to be RuPay cards. These initiative steps will take India forward in its objective of bringing more and more transactions within the ambit of banking towards cashless economy.

At the global level, India has only 2% of cashless transactions, as against 10% in China. In view of this, the present demonetisation initiative by the Government will improve the extent of cashless transactions.

Let us conclude, again with the words of Prime Minister in his Mann ki Baat address that using a payment wallet is 'no more difficult than WhatsApp'. If WhatsApp could be learnt so easily and put to use even by housewives, senior citizens and semi illiterates through computers, considering the economic importance, social significance and commercial feasibility, days are not far off when e-wallet payments will become as popular if not more.