Banks accuse prepaid issuers of misusing business correspondent model

Say PPIs poaching agents, forcing users to shift

Banks are crying foul and accusing prepaid issuers (PPIs) of blatantly misusing the business correspondent (BC) model. At least three banks — one large state-run lender and two others from the private sector — recently wrote to the Indian Banks’ Association (IBA) and highlighted some alleged malpractices by certain PPIs.

This comes at a time when the Reserve Bank of India (RBI) is planning to offer licences to set up payment banks in the country. “There is an immediate need to repair the methods adopted by some of these fly-by-night operators. They are poaching BC agents of banks, allowing agents to charge fees arbitrarily, and evading taxes. While transactions are getting done through PPIs, banks are being held responsible in the case of failed money transfers,” said a banker familiar with the development.

Banks have been creating networks of BC agents to offer services like remittance. Typically, a bank chooses a partner to work as its BC agent, trains the agent, and puts up its signage at the agent outlet. Customers recognise the agent through the signage and remit money by paying legitimate fees and taxes. Following money transfers, customers get SMS receipts from the bank.

PPIs, allowed to offer services like utility bill payments, mobile top-ups, railway ticket bookings, etc, have now been given the permission to provide domestic money transfer services. Bankers claim some PPIs have now started poaching banks’ BC agents. “The efforts made by banks in building their BC networks go waste if agents are poached by PPIs. Also, while agents are branded as partners of banks, they are actually working for PPIs,” said an official of one of the banks that wrote to IBA on the issue.

He added that some BC agents (using PPI agency for other services like bill payments) have also approached banks complaining that their PPI provider is forcing them to stop banks’ services and shift to the PPI platform for money transfer service.

If a customer remits money through a bank’s BC agent, he has to pay a fee of 1-1.5 per cent, which is clearly conveyed to him. But in the case of a PPI agent, the fee often ranges from 3-10 per cent, depending on the urgency to transfer money. Also, the customer does not get a receipt in the latter case, except some vague message that there will be a charge. The PPI agent, it is accused, also does not pay service tax and pockets the fee collected in cash.

Bankers said that while their BC agents registered customers in a standardised manner, PPI agents only created a notional wallet to route money transfers. “If you check the balance in the PPI customer wallets used for domestic money transfers, it is mostly nil. Password of most PPI wallets is 123456, increasing the risk of misappropriation of customers’ money,” said a banker.

Banks, in their letter to IBA, suggested services like domestic money transfers should only be conducted by their BC agents or telecommunication companies, and not by PPIs.