Since 2016, the government has been driving the growth of digital payments in the country. With demonetization, the government provided the required boost to the usage of electronic payments instruments and the largest beneficiary of this move were prepaid payments instrument issuers. PPIs comprising-mobile wallets, smart city cards, transit cards, gift cards, meal cards and e-toll tags grew 76.1 % in volume to INR 3459 million in FY 17- 18. The value of PPI transactions rose 69% to INR 1416.3 billion in FY 17-18. Owning to extensive use of PPIs, various stakeholders have approached the Reserve Bank of India (RBI) for rationalization of certain requirements while providing a well regulated ecosystem. With the increase in PPI transaction volumes across different form factors, the need was felt to revisit the KYC and AML guidelines related to PPIs. Accordingly, with a view to ensure safety and security of PPI transactions, RBI has issued a master circular on issuance and operation of PPIs on 11th October, 2017
The RBI directive has far reaching implications as the mandate not only impacts PPI issuers, but also several other players in the payment value chain such as service providers, co-branding partners.
A fundamental challenge in implementing the RBI mandate is limit management at a transaction level on a near real time basis. Additionally, identifying a unique customer based on differential data sets across different systems adds to the complexity of meeting compliance requirements.
The players that may be impacted include, PPIs issuers (Banks/ Non-Bank entities), co-branding partners, payment intermediaries involved in payment processing, authentication, messaging services.
The new regulation brings in additional complexities that need to be handled in order to ensure timely adherence to the regulations. Following challenges arise for ppi issuers
Bank and Non-Bank entities authorized for issuance and operation of PPIs issued PPIs using below 2 approach:
Customers are sourced and on-boarded by PPI issuers in their system. limit checks, transaction processing and authorization are managed by managed in silos for each system
PPI issuers enter into co-branding arrangement with third parties (referred to as partners) for issuance and operation of PPIs instrument. In this arrangement customers are sourced and on-boarded by partners in their systems and limit check, transaction processing and authorization are managed by partners. Customer on-boarding and transaction data are shared by partners in Excel/CSV with PPI issuers at a mutually agreed frequency.
The fundamental issue with these approaches is that the limits and KYC are managed at a partner or product level as opposed to transaction level. This does not comply with the new RBI regulations.
In order to adhere the RBI directives and address the existing challenges faced, PPI issuers are evaluating various options like.
Building up a centralized solution for PPI limit management across multiple inhouse/partner systems
Enhancing existing systems to cater to the requirement
The new master regulations on issuance and operation of prepaid instruments put the onus on the issuing banks to ensure adherence by distribution partners, thus bringing in additional complexities for the issuers. In order to comply with RBI regulations, issuing banks need to build processes and solutions supporting multi party collaboration, centralized account and limit management, data deduplication, data extraction and reconciliation.
A centralized limit management system not only allows compliance to regulatory guidelines, it presents an opportunity for issuers to get access to customer information which so far was maintained by partners. This centralized repository of information becomes a tool for enabling cross sell of issuer products to a larger base of customers. Apart from providing a single view of the customer, a centralized solution lends itself to consolidated risk management, easier RBI reporting, escrow reconciliation and MIS reporting. With the deadline for compliance having passed, issuers may need to quickly implement the basic features of deduplication and limit management and continue to make enhancements to realize the complete potential of a centralized PPI limit management solution. The following steps maybe undertaken to overcome the immediate challenges in meeting compliance requirements:
Players have 2 options for building out a centralized solution
Issuers need to set up processes for:
Going with Cloud based systems on subscription model using software as a service "SaaS will prove to be sustainable as it allows PPI issuers to focus on core business using existing infrastructure while limiting technology overheads.
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Partner, India FinTech Leader, PwC India
Partner, Payments and FinTech, PwC India
Tel: +91 99 3094 4573