RBI's Fintech implications mandate for 'PPIs Interoperability'

Prepaid instruments are designed to hold funds as a store of value funded by an individual or business for a specific purpose. PPIs are typically issued to consumers or businesses by platforms looking to facilitate digital transactions through swipes i.e., POS machines, online i.e., Payment Gateway, UPI payments i.e., Scan n Pay, or for payments to other customers i.e., Wallets. RBI mandated interoperability for full-KYC prepaid instruments and for all payment acceptance infrastructure by 31st March 2022. Interoperability refers to the ability of computer systems or software to exchange and make use of information. This would imply the exchange of information and the seamless transfer of funds between PPIs.

The move towards mandatory interoperability is being seen as consumer friendly as it will allow customers of mobile wallets to transfer funds from one wallet to another. Further, as a confidence-boosting measure, and to bring uniformity across PPI issuers, it is now proposed to allow cash withdrawals for full-KYC PPIs of non-bank PPI issuers. In the past, the RBI’s policies have inadvertently affected the popularity of PPIs. With the rollout of UPI and the imposition of strict obligations to ensure KYC compliance in 2017, PPIs witnessed a loss of appeal in providing wallet services. The customer base began migrating towards the use of UPI, which provided zero-cost transfers directly from bank accounts, bypassing the service fee which was charged on such transactions by PPIs.

Secondly, the RBI proposed to gradually allow the payment system operators to obtain direct membership in the Central Payment System. This would enable them to additionally transact through Real-Time Gross Settlement and National Electronic Funds Transfer without the interference of traditional banks. Beneficiaries would not only include issuers of payment wallets, but also other platforms regulated by the RBI, such as walled-garden payment options, white-label ATM operators, card networks, and the Trade Receivable Discounting System.

Thirdly, while operating these systems, payment banks will be allowed to settle accounts with a maximum balance of two lakh rupees at the end of the day, as opposed to the previous one lakh rupees per customer. Lastly, the RBI also expressed plans to enable users of non-bank PPIs which are fully subject to know-your-customer requirements to withdraw cash from any ATMs in operation. This comes as a concerted effort with mandating interoperability, mimicking the results of the same for offline transactions as well. As a result, PPI holders are more likely to engage in digitalized transactions and less likely to operate with cash.

This increase, coupled with escalated online transfers, also provides non-banking entities with the opportunity to complete their KYC conformity in addition to the mandate of interoperability.