WhatsApp the latest entrant to Indian mobile payments market, joining Google and Paytm
Mobile payments continue to shift from prepaid e-wallets to UPI apps
UPI infrastructure similar to NPP; perhaps an opportunity for a QR code-based NPP merchant overlay service
Point of View
WhatsApp launched person-to-person (P2P) payments within its messaging app to one million of its 200 million users in beta testing, on 8 February. It is the latest entrant to the increasingly crowded mobile payments market in India, joining the likes of Google Tez, Paytm and BHIM, the National Payments Corporation of India’s (NPCI) own app.
Since demonetisation in November 2016, India has experienced phenomenal growth in electronic payments, driven primarily by e-wallets such as Paytm, PhonePe and MobiKwik. More recently, however, payments made through the Unified Payments Interface (UPI), which is an NPCI system purpose-built to support mobile payments, have begun to take market share from e-wallets. Google Tez, in particular, has been driving significant UPI growth since it launched in September 2017.
e-wallets are increasingly coming under threat. UPI provides a more convenient and streamlined user experience and NPCI, government and app providers employ incentives to use UPI. Additionally, e-wallets now face a higher regulatory burden.
While both e-wallets and UPI apps offer P2P transfers and point-of-sale QR code payments, the back end of each is different. e-wallets are prepaid instruments linked to a user’s card or bank account and require periodic reloading of funds. UPI on the other hand facilitates direct transfers between users’ bank accounts.
Furthermore, e-wallets are not interoperable. Both parties to a payment must use the same wallet app and QR codes are not standardised across wallets. Conversely, UPI apps are interoperable, transfers are made between banks using centralised infrastructure, and QR codes are standardised. (NPCI and the international card schemes together developed the BharatQR standard specification.) Consequently, any account holder can use absolutely any UPI app, even another bank’s proprietary app.
The Reserve Bank of India (RBI) announced changes to the regulatory framework for prepaid payment instruments (PPIs), in October 2017. From 28 February 2018, all e-wallet customers must be fully KYC compliant, in line with requirements for opening a bank account. Furthermore, e-wallets must be interoperable with each other by then, and in future will also need to be interoperable with bank accounts, through UPI.
Previously, e-wallet customers making low-value transactions only needed basic KYC compliance, based on mobile number verification using a one-time passcode (while full KYC requires in-person biometric verification). The ease with which individuals could set up an e-wallet account supported the initial growth in digital payments post-demonetisation. With this benefit now gone but limitations remaining, there are fewer incentives for consumers to use e-wallets. Compounding this, e-wallet providers now face increased compliance costs.
The RBI and Indian government are pushing for citizens to use less cash and take up UPI. In mid-2015, the government launched its Digital India program, with Cashless India a key initiative. The following year saw the demonetisation event, which while purported to be an initiative to curb the black economy, the real reason, according to Forbes, was to jumpstart digital payments.
As part of Cashless India, the government requested in Q3 2017 that banks “…should proactively promote digital transactions and take all necessary steps to make them cheaper for customers than cash transactions.” Further, banks should “…not charge merchants and customers for debit card, UPI… transactions.”
The RBI’s new KYC rules and UPI-interoperability requirements has put significant pressure on e-wallet providers; PayU India and BookMyShow have already withdrawn from the market. However, the writing was already on the wall back in November 2016: e-wallet transactions were not eligible for the government’s ‘cash prize’ digital payments incentive program. The program ran from the date of demonetisation until mid-April 2017 to further encourage consumers to use digital payments.
In Australia, the decline in use of cash continues. Increasing use of the New Payments Platform (NPP), which launched on 13 February 2018, is anticipated to further reduce how often cash is used.
The NPP supports P2P transfers through the first overlay, Osko by BPAY. In future, however “…one payment system that would have great potential in the Australian market would be a QR code-based payment acceptance (system)”, according to data and analytics company, GlobalData. Indeed, BPAY already introduced QR-codes in 2015, for its billing service and BPAY View. According to BPAY, “QR codes are a win:win for everyone in the BPAY family”, namely, financial institutions, billers and customers.
Moreover, more than one million Australians identify as Chinese, according to the 2016 Census, and around 1.2 million Chinese people visited Australia in 2017, a figure which is expected to rise. As the Chinese favour use of QR codes to pay, Australian businesses, including Cabcharge, Sydney Fish Markets and certain Westfield stores, are beginning to accept Alipay QR code payments to cater for these tourists and residents.
As such, could QR codes emerge as a credible alternate payment technology in Australia, rather than just for use on bike sharing?