Wallets and other prepaid payment instruments (PPIs) cannot change their ownership or shareholding till it finishes its review of PPI guidelines, according to an RBI circular. The review will be finished by December 31st 2016 (this year), and for the time being, the RBI has suspended the processing of fresh applications for prepaid PPIs.
“During this period, change in ownership/shareholding of an existing authorised entity would be permitted only where required due to court orders, mergers or amalgamations and/or regulatory exigencies,” the RBI’s circular read.
This may mean that wallets will not be able to raise money through equity funding i.e. raising funding from investors by giving by transferring shares. However, they could possibly raise funding through debt instruments such as non-convertible debentures (NCDs).
Note that the RBI said that the “temporary suspension will not be applicable to applications that may be preferred by the newly licensed Payments banks and Small finance banks.”
At the moment, there are 47 non-bank entities and 45 banks operating in the payments space. Most recently, payment gateway aggregator PayU got a semi-closed prepaid wallet licence from the RBI. Following PayU’s acquisition of Citrus Pay, Citrus Pay said it would be surrendering its semi-closed wallet licence. Note that the RBI also has issued norms for companies who wish to surrender their prepaid payment instruments.
KYC problems for wallets
At a recent event, a senior RBI official criticized PPI players over lax KYC norms which led to opacity in movement of funds, as indicated by this PTI report. The RBI said that there were many instances of wallets being created with minimum KYC without consent of customers. The customer is being identified by his or her mobile number, period. And such wallets have been used for routing money which has been fraudulently taken from bank accounts, the report read. The RBI added that it might come out with guidelines for wallets regarding KYC.
In June, State Bank of India (SBI) removed the option of loading money on all major wallets through net banking due to rising online frauds.
Wallets also are not allowed to be part of the UPI completely. The UPI has not allowed inter-operability functions as “the RBI’s level of comfort of eKYC is not up to the mark in wallets,” NPCI’s CEO AP Hota told MediaNama.