RBI allows interoperability in mobile wallets with KYC conditions

The Reserve Bank of India (RBI) on Wednesday directed financial companies to make know-your-customer or KYC-compliant prepaid payment instruments (PPIs) such as mobile wallets interoperable within the next six months.

“Interoperability shall be enabled in phases for the PPIs,” RBI said. While the interoperability among wallets will be the first phase, the regulator will allow fund transfers between bank accounts and wallets through the UPI platform in subsequent phases, the central bank said in its guidelines.

Interoperability will be allowed only for those wallets which are compliant with KYC norms, the regulator said as part of its revised master directions for prepaid payments instruments.

KYC is a process through which banks and other financial institutions obtain and verify information about customers’ identity and address to ensure services are not misused.

Mobile wallets with up to Rs 10,000 will need to have minimum KYC compared to the earlier limit Rs 20,000, RBI said on Wednesday.

The limit had been doubled to Rs 20,000 in November as a measure to promote cashless transactions among the small merchants which constitute a major chunk of PPI holders with minimum KYC.

These merchants have to provide minimum details including mobile number verified with one-time password (OTP) and self-declaration of name and unique identification number of any of the ‘officially valid documents’.

“The amount loaded in such PPIs during any month shall not exceed Rs 10,000 and the total amount loaded during the financial year shall not exceed Rs 100,000,” RBI said.

Mobile wallets with balance beyond the RBI’s prescribed limit would need full KYC.

The regulator has also raised the minimum net worth for a mobile wallet issuer to Rs 15 crore from Rs 5 crore earlier.

“In the first phase, PPI issuers (both bank and non-bank entities) shall make all KYC-compliant PPIs issued in the form of wallets interoperable amongst themselves through Unified Payments Interface (UPI) within six months from the date of issue of this direction,” the central bank said in its guidelines.

UPI is a payments system launched by National Payments Corporation of India (NPCI) in August 2016 that facilitates instant fund transfer between two bank accounts on a mobile platform, without having any details of the beneficiary’s bank.

Currently, some wallets allow transfers to a bank account at an additional charge. However, once the RBI allows for such transfers through UPI, the charges could potentially be removed. This is subject to UPI transactions continuing to remain free.

According to RBI, the directive is effective from the date of issue and the existing PPI issuers shall ensure compliance with the revised requirements on or before December 31.

“In subsequent phases, interoperability shall be enabled between wallets and bank accounts through UPI. Similarly, interoperability for PPIs issued in the form of cards shall also be enabled in due course,” said the directive issued by RBI.

The operational guidelines on interoperability will be issued separately.

Ramaswamy Venkatachalam, Regional Managing Director – India and South Asia, FIS, a technology and payment solutions provider, said: "Inter-operability will give a fillip to the wallet based transactions at the merchant’s place, since now there is no need for a particular wallet brand to be accepted. Removal of this barrier will strengthen the foundation of a less-cash ecosystem that we are striving to be for the long term."

He added, however, that the advantage of UPI will remain as this mode lets users transfer money immediately to the merchant’s bank account.