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Interconnection issues emerge in Digital Payments

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The battle for the banking customer has barely just begun, and interconnection issues are being created by banks. LiveMint reports of some such instances: the State Bank of India stopped its customers from transferring money into the Paytm wallet; Oxigen wallet users aren’t allowed to load money via payment gateways owned by State Bank of India and Citibank; ICICI Bank’s netbanking occasionally prevents money from being loaded into Oxigen wallets.

MediaNama’s take

This reminds us of interconnection issues in other domains:

– Telecom: There was a phase in Indian telecom when larger incumbent telecom operators didn’t allow calls from customers of newer telecom operators. It took the TRAI to step in and define an interconnection regime. From what I’m told, this issue still exists in parts of Africa, where customers are forced to buy SIM cards from multiple providers.

– DTH: In case of DTH, there was a time when TATA Sky and Dish TV weren’t able to get access to channels from STAR (its parent company is a Joint venture partner in Tata Sky) and Zee (which owns Dish TV). Again, the government had to step in and introduce the “must provide” clause for broadcasters.

The Reserve Bank of India’s reformist approach to Digital Payments is built on the grave of mobile payments startups that died because of conservative payments policies in 2008-2009, which favored banks over nimbler upstarts. The current set of moves – of allowing Wallets and Payments Banks – will be ineffective if practices such as preventing customers from transferring money to their preferred wallet are used to preserve or perpetuate market dominance, or prevent better products from emerging.

The next year will present even more challenges for banks as Payments Banks go live, and banks will struggle to hold on to customers. Some banks will innovate and improve, others will die. More such issues will emerge and those unable to compete try and lock in customers. In our opinion, exclusivity – restricting transfer and withdrawal of money to certain players because of competitive reasons – amounts to denial of service to customers. Banks should not be looking at who the customer is paying or transferring money to.

The RBI needs to step in to mandate interconnection between banks, wallets and payments banks, and not wait for more of such issues to emerge. There is precedence in other domains, and the harms are known. A wait-and-watch approach will only deter growth in this space, and leave customers unsure and confused.

Update: As @SrinivasK points out, interconnection is needed between wallets as well: “inter-operability of wallets is a must for the space to grow. Else you will have payment islands all over the place”…”Imagine i have paytm money but the retailer insists on airtel money to buy the bottle of Coke?”

Also read: Interoperability in payments to be a reality with the United Payments Interface

Image source: Flickr user Vanguard Visions

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