Banks enter fund transfer business, wallet companies take a beating

Banks, which were left behind in the payments space by wallets of financial technology companies, are striking back with an exclusive tie-up for fund transfers with Unified Payments Interface (UPI) of the National Payments Corp (NPCI) dealing a major blow to the growth prospects of wallet companies.

The exclusion of wallet providers by RBI has upset some who have been looking to grow and are in the midst of raising funds which could affect their valuations, said two people who did not want to be identified.

NPCI, which administers UPI, might have excluded wallet companies due to the suspect nature of their security protection rather than with any other motive. UPI, permits customers to choose any bank's app for payments. If this trial run succeeds, it could be extended to all forms of bank dealings.

"I think security is a major issue they are considering while allowing wallets to integrate with the UPI platform," said Jiten Gupta, managing director of Citrus Pay, a wallet provider. "The three or four well-known wallets may be having high levels of security audits, but I do not think they are ready to trust all the 30 PPI licence holders."

With UPI requiring authentication of the transaction within the app itself through a mobile pin, the regulator is hesitant to get wallet players on board who neither have a long track record, nor sound financials to face future liabilities if there are glitches.

If wallets are left behind, their business would be directly affected because UPI brings with it convenience of transactions which till date was the biggest positive for wallets, said Citrus' Gupta.

But the doors are not shut forever. "Right now, wallets are not allowed in UPI, but they have been pleading with RBI directly," says AP Hota, managing director of NPCI. "RBI has only given approval for the pilot project, when they give the final approval wallets may be allowed, but it may take some time."