Advent of UPI and the Fall of Mobile Wallets

UPI has higher leverage over mobile wallets. With RBI’s help, mobile wallets can now increase their consumer base and revenue.


How UPI obtained higher leverage over mobile wallets

Ever since the Unified Payments Interface (UPI) came about, the relevance of digital wallets was dimmed. In 2016, when the National Payments Corporation of India (NPCI) first introduced UPI, consumers saw the benefits of quick money transfer between bank accounts over the tedious process of first loading e-wallets with money before a transfer could be facilitated. This was why e-wallets were less preferred and UPI enjoyed higher leverage in digital payments.

RBI’s Interoperability rule to benefit mobile wallet users.

However, The Reserve Bank of India (RBI) has recently introduced a new interoperability rule which will allow interoperability between mobile wallets of different brands and ‘closed-and-open-loop’ prepaid cards. The rules are user-friendly since up until now, mobile wallets of different brands couldn’t send and receive money to and from each other.

Also, certain merchants were biased towards certain mobile wallet brands which was an inconvenience to consumers.

Upside of the new interoperability rules for mobile wallets

The new rules will benefit both e-wallet users and providers. Users will reopen their abandoned e-wallets and use them for payments and transfers. Mobile wallet providers who were suffering from low deposits and balance will see renewed activity.

Downside of the new interoperability rules for mobile wallets

The new rules may hinder the growth of mobile wallets’ market share in India. The improved flexibility among mobile wallet consumers to easily switch between brands may come as a blow to providers. This is because frequently migrating users will be difficult to keep under the brand umbrella.

Mobile wallet providers need to comply with fixed UPI market share.

The NPCI in the end of 2020 imposed a 30% market share cap on UPI for mobile wallet transactions. As such, mobile wallet providers need to comply with the market share limits hereon before they can see an increase in their consumer volume and revenue. The bottom line is that UPI still holds a higher leverage over e-wallets and e-wallet providers need the help of UPI to stay relevant, and see growth in their usage.

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In 2016, when the National Payments Corporation of India (NPCI) first introduced UPI, consumers saw the benefits of quick money transfer between bank accounts over the tedious process of first loading e-wallets with money before a transfer could be facilitated.

What’s in it for me?

Starting April 2022, mobile wallet users who are fully compliant with their KYC can send and receive money to other mobile wallet providers. Mobile wallet providers will need to collaborate with NPCI to link UPI IDs with e-wallets. They will need to enable interoperability through UPI.

Encourage users to pay for small transactions using their e-wallets. With the new levelled out playing field, new business opportunities open up for wallet companies. Henceforth, you need not build up merchant networks to acquire e-wallet customers since UPI-accepting merchants will also accept wallet transactions.

Encourage users of your e-wallet to make it their primary payment method. You can also easily acquire new wallet users since consumers will be open to getting on board due to interoperability. Complying with the RBI norms, all Prepaid Payment Instruments (PPI) issuers taking advantage of the new interoperability rules should establish appropriate customer redressal mechanisms to limit customer liability. 

Anju Nambiar
Anju Nambiar
Anju has 5 years of experience covering business. She writes on startups, business life cycle and startup ecosystem. Her stints include Amazon and Adjetter Media Network.

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