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The Revolution Powered by The Interoperability of Prepaid Payment Instruments
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The Reserve Bank of India (RBI) guidelines on interoperability of prepaid payment instruments (PPIs) was a much-awaited step under the revised PPI road map announced in December 2017. After the RBI allowed interoperability, individuals can freely move money from a know-your-customer (KYC)-compliant digital wallet offered by one company to those run by another and, eventually, to bank accounts
To start with, interoperability will encourage wallet companies to move towards alternative sources of revenue. Some wallets have started focusing on revenues from multiple sources such as e-commerce, bill payments, insurance, wealth management and lending. However, it would not be wrong to say that payments bring in customers and data, but not necessarily revenue. Digital wallets need to focus on building an ecosystem around their offerings, which has been done by players like Bajaj Finserv Limited. Bajaj Markets, which is a corporate agent of Bajaj Finserv Limited, is a one-stop-shop for all financial products such as bike loan, travel loan, motor insurance, and other insurance and mutual fund products.
Secondly, it can increase customer loyalty to a particular service provider. User retention due to interoperability would reduce the wallet players’ ability to rely on network effects for user retention. However, it can make the wallet ‘sticky’ by reducing a consumer’s incentive to switch to another provider. Over time, the wallet can become a single touch point for a wide range of digital transactions. Using details of wallet customers, wallet companies can build a detailed profile of the individual and advertise other services such as merchandise, tickets, loans, etc. Payment interoperability, without data portability, can, therefore, strengthen the larger players.
Thirdly, it will bring millions of new customers online. Economically speaking, the growth efforts of various digital payments players will now be ‘strategic complements’ – i.e. others would also grow with a particular firm’s growth. The industry will move towards a low-margin environment, directly benefiting millions of customers. However, under-investment in service quality, and potentially data security, are possible unintended consequences of such competition. Companies will have to find a balance between low costs and high service quality. Some large financial institutions have perfected the balance between cost and services through operational efficiency. Bajaj Markets is a prime example of affordability and excellence. One can get products ranging from bike loans, travel loans, motor insurance to electronics items. But for digital wallets to prosper, the National Payments Corp. of India (NPCI) will have to evolve constantly and grow the unified payments interface (UPI) platform in response to India’s burgeoning digital payments demand. Leading players in the financial sector will also have to speed up the adoption of UPI. Customers can use UPI, besides other payment mediums to transact on Bajaj Markets. With the UPI facility, you can perform cashless and cardless transactions simply with the click of a button. The UPI facility makes for a one stop shop to avail exciting deals, make use of its simple interface to swoop in on those deals and enjoy the convenience and privacy it provides.
Finally, more digital transactions will create increasing amounts of data. Digital payments firms will seek to capture the data to create accurate profiles of individuals. An individual’s financial data is among her most sensitive information since it can be used to deduce her income, tastes and activities. Data governance becomes quite important looking at the vast collection of data to protect individuals.
None of this takes away from the timeliness and benefits of the new guidelines. Regulators need to monitor the long-term consequences so that individuals are protected and empowered. RBI will need to work closely with NPCI and the proposed data protection authority to generate maximum benefits in a rapidly growing economy.
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