Payment wallets must improve customer grievance redress mechanisms: Expert

Cumbersome KYC requirements, issues of safety and security of personal information, and no incentive to maintain balance are some key concerns flagged by experts

On March 1, the Reserve Bank of India’s (RBI) circular limiting liability of customers in unauthorised payment wallet transactions came into effect. With a focus on “customer protection”, this is a step by the regulator to create an improved consumer protection system in the increasingly prevalent mobile wallets market in the country. 

India has been dubbed as the world’s fastest growing mobile payment market. With that, the concerns of the sector and the impact on customers, including possible fraudulent transactions and safeguarding personal information, have come to the forefront. 

In order to ease the consumer grievance redress system, the RBI has created an Ombudsman Scheme for Digital Transactions. It has made the Know Your Customer (KYC) norms more stringent for mobile wallets. There are also Prepaid Payment Instruments (PPI) guidelines that require setting up of grievance redress mechanisms and appointing nodal officers. 

Experts said that there were several issues with the existing system of how payment wallets are regulated. 

Consumer concerns

In terms of the problems faced by consumers, experts flagged several emerging concerns in the payment wallets or mobile wallets market. Cumbersome KYC requirements, issues of safety and security of personal information, and no incentive to maintain balance in wallets are some that experts mentioned. 

With the kind of growth that the mobile wallets sector is witnessing, the key is to keep up with technological developments, said Garima Joshi, partner at Cyril Amarchand Mangaldas. “The regulator needs to keep pace and ensure that the legal framework adequately addresses challenges and ensures the protection of consumer interest,” she said.

At present, the sector is regulated by the RBI through the Payment and Settlement Systems Act 2007, along with other circulars, regulations and guidelines. 

Resolving grievances

A 2019 concept note titled ‘Consumer Protection and Payment Wallets’ by think-tank Vidhi Centre for Legal Policy noted that consumer grievances on digital financial transactions formed 19 per cent of all complaints in 2016-17, which increased to 28 per cent in 2017-18. This shows that there is a need for improved grievance redress mechanisms. 

Fali Hodiwalla, partner-advisory, financial services at EY, said that mobile wallet companies are focused on customer acquisition, rather than addressing consumer grievances. “Though RBI has laid down strict norms for process and policy around consumer grievances, consumers still face challenges getting their queries resolved. Some wallet providers are trying to simplify the issues faced by consumers by adopting new technologies like chatbots,” he added.

The missing link to effective grievance redress, according to Aparajita Srivastava, senior associate at Ikigai Law, a technology-focused law firm, is lack of consumer awareness of the available recourses. “The need of the hour is PPI Issuers investing in educating customers about secure use of wallets and grievance redress mechanisms,” said Srivastava. 

Regulating wallets 

A primary concern for improved regulation of the sector is to identify the regulator responsible, Joshi said. The PSS Act, 2007, grants the RBI the power to regulate. But a newer Bill – the Payment and Settlement Systems 2018 – was proposed by the Inter-Ministerial Committee for Finalisation of Amendments of the PSS Act, 2007. This Bill would set up the Payments Regulatory Board.  

“As a gating issue, the existing divergence of views between the government and the RBI on identifying the regulator responsible for monitoring payment systems needs to be resolved at the earliest, as that would have an impact on the overall efficacy and operationalisation of the regulatory framework,” Joshi said.

As such, the new Bill is a ‘step towards separating banking and payments’, Hodiwalla said. The Bill is likely to foster competition and innovation, he added. “A more inclusive regulatory design is likely to further promote competition and as a result help improve access, safety and convenience related to payments and help reduce transaction costs,” he said. 

RBI’s role 

However, in the existing system of regulation, the RBI’s role is paramount. The Vidhi concept note recommends two technology-based approaches to improve the RBI’s capabilities to collect and analyse consumer complaints data of payment wallets. One is direct access to consumer complaints data from PPI Issuers on a real-time basis; the other is setting up a centralised online grievance redress platform. This data will help the RBI draw insights ‘pertaining to operations of the PPIs, security risks associated with such PPIs, identify trends and potential consumer risks that such PPIs may pose, etc.’ The concept note said these steps will help determine the RBI’s supervisory policy.