Over the last month we have seen an explosion in the number of digital wallets popping up for customers, consumers and businesses alike. This has been validated by the fact that two of India’s largest private sector banks, ICICI Bank and HDFC Bank are announcing their plans for a mobile wallet.

ICICI Bank this month launched Pockets which integrates a digital wallet, a physical prepaid card and a basic savings bank account. Meanwhile HDFC Bank is yet to announce its digital wallet but an email from the lender’s managing director Aditya Puri to customers talking about the same underscores the importance of the digital payments space.It’s also worth noting that Chillr, a mobile banking app, has tied up with HDFC Bank to both send and receive money over the platform. According to Chillr, the app will remove OTP requirements and the need to remember account number and passwords for HDFC Bank users. .

But in January we also saw that RBL Bank  tied up with TranServ, a digital payments company, and iKaaz, a Bangalore-based NFC payments firm, partnered with DCB Bank to launch co-branded wallets too. TranServ launched Shmart!, a digital payments suite for both customers and merchant, where RBL Bank provides semi-closed loop prepaid account to store funds. On the other hand, iKaaz’s mobile application, MOWA,  facilitates consumers and merchants to make and receive payments based on the mobile number.

Shmart! offers a prepaid reloadable wallet for consumers and also gives merchants a number of APIs which they can integrate into their website and hence have a wallet.  Shmart! says that through this, it counts over 150 merchants including PayUMoney, as its customers. TranSserv says that a major event ticketing website, a classifieds website and few other ecommerce websites will be launching their own wallets riding on its platform.

Anatomy of the partnerships with the banks

It’s interesting to note that both TranServ and iKaaz do not have a prepaid payments instrument (PPI) licences from the Reserve Bank of India to run a digital wallet. However, through their partnerships with commercial banks, they have been able to get the necessary regulatory approvals to operate one. The connection with banks also allows the payment companies to store the funds in an escrow account with the bank which can be moved to different merchants’ and beneficiaries’ bank accounts. The funds which are stored in escrow also allow customers to take back their money stored in the wallets to their respective bank accounts if they cannot find use cases for it.

“From a regulation perspective, DCB Bank plays a key role. The money resides in the DCB escrow account. And the money will be disbursed to the other merchants and the receivers by DCB Bank. The settlement is done through the NEFT payments platform. NEFT charges will not be applicable for these transactions and is available for free. Otherwise, for NEFT transactions, we charge about 1.5% of the transaction,” Soma Sundaram, founder and CEO of iKaaz, explained to MediaNama about the transactions on MOWA.

Essentially, the companies link a customer’s bank account or debit card with their application and hence the money moves out the bank account only at the time of transaction. In most other prepaid wallets, once a certain amount is loaded into it, it has to be spent at certain merchants who accept payments from the wallets and there isn’t a recourse for customers to take the funds stored in wallets if they are lying dormant.

In the case of TranServ’s Shmart!, the funds which are lying dormant in the wallet could attract a fee for maintaining them. “At this stage we are not charging anything to the consumer,” said Sandeep Ghule, chief marketing officer at TranServ. “But the customer also has the option to take back the money to his bank account through the IMPS payment system,”  he added.

The tie up with RBL Bank also allows merchants to offer cash backs and run promotions. The funds for cash backs and promotions which merchants run are stored in escrow again with RBL Bank. ” There are two parts of the wallet. One is the restricted money and there is the general purpose money. General purpose money is the consumer’s money which he has loaded into the wallet. Let’s say a customer has got a refund from a ecommerce website, then it can be taken out into a bank account. Restricted money is your promo codes, vouchers. For example, if a merchant wants to give Rs 100 voucher benefit to the customer, then that money is restricted to the merchant for a particular expiry date and that money cannot be converted into cash,” Ghule added.

NPCI’s unified payments interface

The wallets offered by TranServ and iKaaz do have some interesting features which allow customers to take back their funds. However, it remains to be seen how it would stack up against the National Payments Corporation of India’s (NPCI) Unified Payments Interface (UPI) which offers greater interoperabilty between payment systems.The UPI is an additional layer of payments architecture built upon the IMPS mobile payments system. However, the additional layer provided by the UPI will allow interoperability between different payment systems. For example, through the UPI, a Paytm customer can make a payment to an HDFC Bank’s customer directly into their account.

The UPI also will allow payments only by providing an address with others without having ever provide account details or credentials on third party applications or websites. This will be done through virtual payment addresses that are aliases to bank accounts. Under the UPI, a payment address is a handle that can uniquely identify account details. In this architecture, all payment addresses are denoted as “account@provider” form. An example would be, Aadhar-no@aadhar.npci.