The Reserve Bank of India’s move to tighten guidelines for prepaid payment instruments (PPI), or popularly known as mobile wallets, has caught the industry by surprise.

Mobikwik, PhonePe, Amazon Pay, Pine Labs and Airtel Payments Bank among others, now have to adhere to a Rs 2 lakh monthly outstanding balance in a wallet, Rs 25,000 limit for person-to-person (P2P) transfers and Rs 10,000 monthly cash loading balance, among other restrictions.

“The restrictions on monthly deposit or on daily limit seem like we are trying to create a disadvantage for some of the players in the ecosystem while allowing others an upper hand,” industry thinktank Policy Consensus Centre has said.

Moneycontrol has reviewed the copy of the meeting’s transcript.

On May 20, the think tank held a round table with various stakeholders, including fintech associations, mobile wallets, fintech consultants and former bankers, to discuss the central bank’s April decision.

According to sources, some of the participants said the move felt as though policymakers are trying to reduce the strategic importance of wallets in favour of the banking system and UPI.

Why did the RBI tighten norms?

Most of the regulator’s concerns stem from the misuse of digital wallets by betting, gambling, and real-money gaming firms, segments that are banned. Despite the ban, these illicit activities continue, with merchants often misidentifying or miscategorising themselves to facilitate such transactions.

“The RBI does not generally tinker with limits or its principles unless they have definitive input and data supporting the new guidelines,” the founder and CEO of a payment gateway firm said on condition of anonymity.

“The instrument was initially meant to get the unbanked to use digital payments. The RBI data suggests that its use is happening differently.”

Ram Rastogi, a former NPCI executive and the chairman of Fintech Association for Consumer Empowerment (FACE), said that the RBI is open to suggestions and could change limits for certain segments.

The red flag

According to a source who works closely with the central bank, the Financial Intelligence Unit (FIU) of the finance ministry flagged the suspicious nature of several such transactions.

While no cases have been filed yet, the finance ministry’s Financial Intelligence Unit (FIU) has flagged suspicious transactions, the transaction frequency, mismatch in income-to-value levels and sudden account inactivity following high-value transfers for other agencies for further probe.

‘Make data public’

Moneycontrol spoke to executives of several mobile wallet firms who said no such data has been shared with them, or the regulator has not raised any such concerns until now.

“If the RBI has any such data, it should share it with the industry or make it public. Rather than punishing the firms facilitating such illegal transactions, putting restrictions on the entire industry is unfortunate and unhelpful,” a founder and CEO of a payments firm told Moneycontrol.

“We have made several hundred crores of investments to do the full-KYC and merchant onboarding. With the restrictions, the wallets will never be profitable. The payment firms will be hesitant to make any fresh investments in any such financial inclusion niche payment products,” a second CEO said.

Wallet firms said the rules would be detrimental to the industry, claiming most of these illegal transactions happen through UPI and even legal banking channels.

Different economics

The participants at the May 20 meeting said the economics of wallets are different from those of the banking or the UPI ecosystem. The new guidelines could make prepaid instruments (PPIs) more difficult and expensive to operate, increasing customer drop-offs.

“Instead of laying down limits for the industry, the regulator and industry should target the risk and the governance practices. Eventually, regulation should kind of evolve to a principle-based regulation rather than a prescriptive base,” said Nirupama Soundararajan, CEO and co-founder of PCC, during the meeting.

“The idea of a mobile wallet was for a specific purpose. Some of the use cases have shifted since the emergence and adoption of UPI. The RBI is never in a hurry, and it acts late after seeing system abuse for several months. If consumers want a higher limit, they should go for other payment instruments,” said a source close to the RBI.