Virtual Money

29 Jul, 2008
E-wallets are very attractive products but they cannot take off unless RBI acts with speed to set up a regulatory and supervisory system, finds out Sucheta Dalal
Over the past few decades, savvy marketers, aided by rapidly changing technology, have persuaded us to switch from cash as the currency of commerce to plastic – mainly credit cards. When financiers realised that a large number of their customers was uncomfortable with credit cards that carried high interest rates, they introduced debit cards, which instantly debited a customer’s bank account like in a cash payment. That too exposes one’s entire bank account to cyber security risk, especially when it comes to small online payments for
buying movie tickets, gifts, flowers or books.
The next innovation was a stored value card (like those offered by petrol companies) and then ‘virtual money’ or e-wallets that can be charged online. There is a burgeoning global market for e-wallets mainly because of the mobile payment option that was made possible through rapid growth in telecom technology and the easy recharge options e-wallet services
provide.
Why is the e-wallet so attractive? Primarily, because it offers a low-risk payment facility that limits a customer’s liability to the monetary value loaded on to the card. It is also easy to recharge or top up and does not expose one’s bank account to the threat of hacking or cyber-fraud. Every e-wallet or mobile payment service also touts the fact that there are no deductions on face value, when you top it up with cash (unlike the top-ups for mobile phones).
Anyone with an email ID can register and create a ‘secure’ account with the service provider, which acts as a wallet. One has to charge or load the e-wallet by transferring money into it by cash or through an electronic transfer from a bank account or recharge vouchers. Essentially, it transfers money to ‘anyone, anywhere’ in the world. And therein lies the rub. While a dozen-odd companies have launched payment products and are vying to build market shares, a significant issue is the absence of a regulatory framework to govern their operations.
Today, the global worry over terrorist funding and money laundering regulations has forced most governments to set up a regulatory regime that tracks the movement of funds, ensures clear audit trails and adherence to strict Know Your Customer (KYC) norms. KYC requirements have been significantly tightened for opening bank accounts, depository accounts or even subscribing to a mobile phone service.
But the regulatory framework for e-wallets is not in place because the Payment Systems Act, which empowered the Reserve Bank of India (RBI) to regulate all payments, was finally passed only in December 2007 and RBI has still to frame regulations under the Act.
With regulation lagging so far behind public demand as well as technology changes, nearly a dozen products have been launched and they operate entirely outside any regulatory ambit. RBI has forced some to shut down and turned a blind eye to the operation of others. Consider this.
• Wallet365, from TimesofMoney (the Times of India group) made its debut in June 2006 with a big blitz launch by superstar Amitabh Bachchan; it quickly registered over 85,000 users. A couple of weeks later, RBI stopped it in its tracks and asked it to ‘desist’ from offering the service. It said that money stored in e-wallets when deposited in the current account of a service provider amounted to ‘acceptance of deposits’ and violated RBI rules. It also asked banks not to “associate themselves” with such schemes.
• Curiously, it did not stop ItzCash from the Essel group, which is a similar product. It was allowed to build a big market share and, according to rivals, has a turnover of as much as Rs800 crore per day, over half of which is in cash. Such is the demand that dealers of ItzCash often run out of recharge cards, which are popularly used to participate in the group’s Playwin lottery. Itz has created separately branded payment channels such as – ItzPay (bill payment, donation and subscriptions), ItzShop, ItzYatra, ItzMobile, etc. Is it safe? A source says, “ItzCash is secure while transacting online but, on mobile, it works through pure SMS which is risky.”
• Then there is mChek, which calls itself “India’s largest mobile payments platform” offering bill payment, insurance, flight booking, bus and movie tickets and e-commerce. It claims more than one lakh users.
• ZiPCASH is yet another e-wallet which addresses itself to the youth market. Its pitch is to be a cool dude and zip your payments via mobile instead of carrying pockets full of cash or ‘prehistoric plastic’! It can be recharged online, or by paying cash over the counter.
• Atom Technologies, a division of Financial Technologies Limited, is also in the business. Atom stands for ‘any transaction on mobile’ and is popular with multiplex cinemas.
• Other offerings in this space include Obopay and OxiCash. OxiCash is part of the Oxigen group headed by Pramod Saxena. Its other promoters are Blue Label Telecom South Africa & Microsoft Corporation US. Oxigen calls itself a mobile wallet or virtual wallet. It is essentially a stored-value closed wallet that is accessible through the phone and the mobile and allows safe payment of bills for online shopping, travel, recharge facilities, etc. Here, the mobile phone becomes the unique identity and eliminates the need for a bank account or credit/debit card for
e-commerce. It integrates Windows Live-ID with OxiCash wallet, says Sunil Kulkarni, president, corporate of the company. It claims a network of 50,000 retailers, which is set to expand to 250,000 by 2010 where customers can top up their wallets by paying cash or through a debit card.
In the absence of regulations, banks could not provide e-wallets or even mobile payment facilities. Some were so impatient that they decided not to wait any more and offered the service. ABN AMRO Bank had tied up with mobile-payments provider PayMate to provide its customers with mobile payments and ticketing services. Max New York Life had joined hands with mChek (powered by Citibank) to policyholders to pay their renewal premiums.
Then, on 22nd July, RBI issued a circular specifically barring banks from launching such schemes until it issued formal regulations. RBI has made it very clear to banks that all payments are part of its regulatory domain and they cannot launch products without its clearance.
That still says nothing about why RBI permitted the launch of so many e-wallets and mobile payment systems without raising any objections, when it had specifically barred Wallet365 from TimesofMoney. After all, all the new schemes pool customers’ money into a single account for settlement of Internet or physical transactions. The adherence to KYC norms is also indirect. For instance, if the mobile phone becomes your unique identity, then the mobile service provider would have to have KYC compliance.
Was Wallet365 unfairly penalised for being first off the mark? We asked RBI for its reaction. Chief general manager, AP Hota, replied, “We are examining the regulatory issues involved in the issue of e-money keeping in view legal provisions on issue of money. In any case, the entities issuing e-money would be subject to the Payment and Settlement Systems Act which is being operationalised soon.”
E-wallets and electronic payment systems are, indeed, attractive and bound to be enormously popular in India. RBI needs to recognise this fact and act with speed to put in place regulation and a supervisory system so that users are not forced to depend on the ethics of individual service providers.

Courtsey :(MoneyLIFE, Issue 14 Aug 08)