With mobile wallet interoperability in pipeline, payments banks face survival crisis

Payments banks, which have so far failed to make any dent in the new-age banking system, further see a huge threat from mobile wallet companies.

The mobile wallet ecosystem which is continuously evolving and soon going to adopt interoperability, that would allow users of different wallet companies to transact with each other, seems to have rattled payments banks. They believe that the interoperability offered to wallets could directly affect their business models and put them at a disadvantage.

The RBI said in a direction issued in its October 2017 order and updated in December that interoperability will be enabled in phases for Prepaid Payment Instruments (PPIs), or digital wallets.

The payments banks are protesting against the RBI’s direction and they feel that by permitting interoperability, UPI handle and debit cards, non-bank PPIs will become quasi-banks in terms of payments. They will have a regulatory arbitrage overpayment bank, considering the significantly less capital and other regulatory requirements they have to comply with. These facilities should be limited only to banks,” suggest the banks.

Experts feel that the concerns of the payment banks could be justified because they cannot accept deposits beyond Rs 1 lakh or offer loans.

They added that if wallets get interoperability they will be able to offer a similar experience to their customer base, thereby causing a severe disadvantage for these banks.

Of late, payments banks are facing some serious issues. In a recent development, following an audit, RBI had asked Paytm Payments Bank to stop registrations of new customers. The apex bank of India isn’t happy with the process adopted by payments banks while registering new customers.

RBI had objected on cashbacks and other discounts offered by payments banks while onboarding customers. The regulator had also asked PPB to do the KYC physically instead of e-KYC for signing up new customers.

This development was first reported by ET.