Indian public and private sector banks are quite irritated by the regulatory favouritism (arbitrage) being extended to privately funded mobile wallet companies which are essentially performing a banking business (transferring money from one wallet to another), but without being subjected to stricter and tighter regulatory oversight that banks are subjected to. Banks do acknowledge the enormity as well as the urgency to digitise an overwhelmingly cash economy “But that’s not the fair way to go about it,” says public sector banker, “as it distorts a level playing field.” The Reserve Bank of India (RBI) has relaxed the requirement of second factor authentication (a secure mechanism whereby banks send “One Time Password” to their customers) for all wallet transactions and this relaxation applies to all the wallets whether promoted by banks or by privately funded wallet companies. Such a regulatory relaxation has been given on the premise that if some money gets compromised (meaning fraud), only the money in one’s wallet would get compromised without exposing one’s entire bank account to such an act. And “this is where the problem starts,” says a public sector banker. “If some money gets siphoned off from the wallets operated by us, we would be questioned to death by the regulator, ombudsman and other consumer forums, but if such a cyber crime happens through other wallets, there are few redressal options available to customers as these companies are faceless creatures.”
The RBI’s latest decision to double the amount of money (from Rs 10,000 to Rs 20,000) that an individual can have in one’s virtual wallet only aggravates this fear. Banks feel that they would rather welcome a scenario where these wallet companies are given a banking licence so as to bring them under the scanner of the regulator (the RBI) to ensure the safety and security of people’s (financial) privacy. “We would love to face that healthy competition,” says a private sector banker. The other potential risk that might emanate in future relates to the funding structure of the privately funded wallets. Banks argue that some of the funding is coming from countries that India is not comfortable with. The cash back (discount) culture being promoted by these companies to lure in customers to their digital platform is surely a short term euphoria.
The potential risk that might emanate relates to the funding structure of the privately funded wallets. Banks argue that some of the funding is coming from countries that India is not comfortable with.
An entity does not do business for charity and therefore “today these companies are charging zero paisa for their services, but what they would charge tomorrow is not known”.
The discount or cash back business model cannot be carried on forever, feel many. E-commerce companies operating in India are fine examples which, after offering steepest discounts for the past couple of years, are hunting for profits now. The nationalised banks, on the other hand, are neither permitted to offer such freebies, nor do they have the required wherewithal.
Analysts agree that banks have a point there, but banks are themselves to be blamed for their (real or assumed) fear.
Mavens argue that wallet companies were early risers and had actually overtaken the mainstream banks in terms of introducing user-friendly technology which even a lay man can understand.
Banks also have their virtual wallets, but these were introduced much later. Moreover, the Unified Payment Interface (UPI), which is a secure way to do digital transaction, is still being introduced by banks, but this UPI is as complicated as its name suggests.