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We missed this earlier. Digital wallets may be required to maintain deposits in commercial banks or any other liquid assets, according to an amendment (pdf) to the Payments and Settlement Act passed earlier in May this year.
The amendment says the RBI may specify a percentage of the amount collected by wallets to be held in deposit accounts. It added that the balance can only be used for payment by the customers or repaying customers.
From the amendment:
23A. (1) The Reserve Bank may, in public interest or in the interest of the customers of designated payment systems or to prevent the affairs of such designated payment system from being conducted in a manner prejudicial to the interests of its customers, require system provider of such payment system to––
(a) deposit and keep deposited in a separate account or accounts held in a scheduled commercial bank; or
(b) maintain liquid assets in such manner and form as it may specify from time to time, of an amount equal to such percentage of the amounts collected by the system provider of designated payment system from its customers and remaining outstanding, as may be specified by the Reserve Bank from time to time:
Provided that the Reserve Bank may specify different percentages and the manner and forms for different categories of designated payment systems.
(2) The balance held in the account or accounts, referred to in sub-section (1), shall not be utilised for any purpose other than for discharging the liabilities arising on account of the usage of the payment service by the customers or for repaying to the customers or for such other purpose as may be specified by the Reserve Bank from time to time.
Implications: It needs to be noted that the Reserve Bank may ask wallets to maintain reserves if it feels that there is detriment to consumers. So far, the apex bank hasn’t issued an directives for the same. And it looks like the amendment is geared to give the RBI more teeth to regulate wallets.
If the RBI does decide that wallets will have to maintain a reserve, it will be regulating them more on the lines of commercial banks which maintain a mandatory cash reserve.
In case of insolvency
The amendments also gave rules to enforce netting if a payment system declares insolvency. In bankruptcy, netting refers to calculating the total amount owed by a defaulting company to various parties.
The amendments said that determination of payment obligations and settlement instructions will be done by a central counter party. A central counter party is a provider who intervenes between participants and makes sure they get what is owed. An example of a central counter party is the Clearing Corporation of India Limited. The RBI will authorize the netting procedure and whatever amount calculated by the central counter party will be considered final and irrevocable.
Wallets route payments to different merchants through escrow accounts maintained in commercial banks. These escrow accounts are treated as current accounts by the banks and used mostly for clearing payments (more on that here). So it shouldn’t be a problem for them to maintain a reserve with banks. It should be make things easier for consumers
The amendments will make it easier to determine who is owed what in the case of insolvency and bankruptcy measures will be easier considering the buffer maintained in commercial banks.