Know-your-customer (KYC) norms of the Reserve Bank of India (RBI) have caused a steep decline in mobile wallet usage, with transactions dropping by nearly half in one week after the compliance deadline.
Harshil Mathur, the co-founder of digital payments platform Razorpay told Medianama, “In the first two weeks of March we have seen wallet transactions drop by almost 40-45%.”
Mathur expected the volume of transactions to go down even further, “A lot of the spending in the last week has been from people using up their existing wallet balances to make purchases. But once those balances dry up, there will be even fewer instances of people making transactions.” Note that KYC non-compliant users can no longer add money to their wallets.
Pallav Jain, consumer business head, PayU India, also told the Financial Express that volumes dropped about 40-45%, but was measured about the future suggesting the numbers may rebound a bit before stabilising. Medianama has reached out to PayU India and we will update the copy when they respond.
The Hindu reported that limited e-KYC has helped soften the blow somewhat, especially in the e-commerce space. “E-commerce volumes are hit to a lesser extent because RBI has allowed e-KYC of the customers for 12 months, after which full KYC can be done. However, customers who opt for e-KYC can transact only ₹10,000 per month,” an unnamed payments industry official told the paper.
The report pointed to the difference in sizes of money transfer and e-commerce payments. Remittances — where account holders transferred funds from an e-wallet to a bank account or to another wallet — had earlier averaged about ₹10,000 crore a month, e-commence transactions, which entailed the use of wallets to pay merchants, had been in the range of ₹2,000 crore a month.
What the RBI said on wallet balances
The Reserve Bank of India had said that customers will not lose money from mobile wallets even if they remain non-compliant to its full KYC (Know Your Customer) guidelines after the deadline expires. But usability of the wallet will be severely limited.
Reloading on the wallet and remittances can only resume after completing the KYC requirement. Users will be able to undertake transactions for purchases with the available balance in the wallet. So you can still pay for your Uber rides and order food online with the balance amount left on your wallets even after the KYC deadline expires, but you can’t add any more money to it.
Wallet companies had predicted this
Mobile wallet companies had raised alarm that this move could seriously cripple them. According to a report on the Economic Times, the total number of customers who had submitted their KYC details just days ahead of the deadline was in ‘low single-digit’ percentage.
The report quoted chief executive of a payments company, “If these norms are implemented in full force, the entire industry, which handled around Rs 12,000 crore worth of transactions in December, will be facing a major crisis.” The Payments Council of India (PCI), the representative body for digital payment players, as well as various other industry stakeholders, have spoken about how the full KYC requirements would possibly hamper mobile wallets.
Is this a permanent tipping point?
Razorpay’s Mathur told Medianama that he sees this as an acceleration in a trend of steady fall in wallet usage, along with a simultaneous rise in UPI transactions. “Earlier it was easier to sign up for and perform transactions with wallets over UPI, now with the KYC norms in place it easier to setup and start using UPI,” he added.
Razorpay says it has the data to back this up. A blog published by the company highlights the shift from wallets to UPI. Back in October 2016 over 96% of transactions took place using wallets and less than 4% was with UPI. In the month of March 2018 so far, the ratio is 64% to 36% in favour of UPI transactions. It must be noted that Paytm, which is the biggest mobile wallet provider in India is not accounted for in this graph. This is because Paytm wallet is not available as a payment option on Razorpay’s platform. The absence of the biggest wallet player may have added to the skew in numbers favour UPI.