Banking & Insurance Law

Research Paper
Topic: - Legal Study of Payment Banks and E-Wallets in India:
Success, Failures and Challenges
Submitted By: - Submitted To: -
Maahi Trivedi Prof. (Dr.) Abhishek Gupta
Devansh Singh Assistant Professor
Enrollment No.: - School of Law
L19BALB005 Bennett University
L19BALB100
Programme: -
B.A.LL.B. (Hons.) [4th Year (7th Semester)]
Section: -
A

Page 1 of 21
 Table of Contents

I. Introduction……………………………………….….....….....4-5

II. Payment Banks & E-wallets: Role and Significance…………5-7

III. Legal and Regulatory Frameworks for Payment Banks and E-

Wallets in India……………………………………………....8-

11

IV. Payment Banks and E-wallets…………………..………….11-

15

 Success…………………………...……...11-12

 Failures…………………………………..13-14

 Challenges……………………………….14-15

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 V. Guidelines for Registration of License for Payment Banks...16-

17

VI. Conclusion………………………………………………….….18

VII. Bibliography…………………………………………………...19

Abstract

Money is considered to be the most crucial aspect of one’s life since the times of early
civilizations not only economically, but in non-economical ways as well. Since we all know that
in earlier times, the well-known Payment and Settlement System (PSS) was the barter system
wherein a good or commodity was brought in exchange in lieu of another good or commodity,
and then with the evolution of time, the concept of money emerged, as coins came into existence
and subsequently paper notes, which consequently gave rise to banks. The evolution of the
banking system and advent of bank accounts led to an easy and safe method for making
payments by transfer of money through bank accounts. The transactions used to take place with
the help of a payment instrument called cheques, which emerged as the primary instrument for
payment transactions. So, in a way, it commenced the tale of payment systems. This research
paper would primarily emphasize and focus upon the evolution of the payment banks and e-
wallets in India along with its various legal frameworks followed by successes, failures, and
challenges of them in a detailed and prescribed manner. The Reserve Bank of India (RBI) acts as
the primary enabler of digital payments in India where the oversight of the payment systems is
entrusted to the it. The RBI predominantly sets goals and targets in the form of Payment Systems
(Vision Document) in every 3 years by presenting the road-map for improving the payment
systems of the country. In this contemporary era, the digital revolution in the banking sector is
taking the world by storm where almost every country is moving towards becoming a cashless

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society – a society where cash isn’t used for any of its transaction, instead all the transactions are
done digitally. In India, it is quite evident that after the government's announcement on
Demonetization on 8th November, 2016, electronic monetary transactions including payment
banks and e-wallets have been at the center stage, thereby helping India getting steered towards a
cashless society and in building a strong digital payments framework. The Digital India
programmes are a flagship agenda of the government of India vision to transform India into a
digitally empowered society. The Prime Minister Mr. Narendra Modi has empowered India to
adopt cashless transactions, which has given a significant boost to the digital payment sector and
has experienced an unpredicted growth since Demonetization in November 2016. Thus, we can
say that from barter system to Unified Payments Interface (UPI), payment systems in India have
come a long way.

Key words: - Payment Banks, E-wallets, Digitalization, Cash-less society, Reserve Bank of
India.

I. Introduction
The journey from the barter system to the digital revolution has indeed been a wonderful one,
which has come a long way with the payment banks and e-wallets being emerging as one of the
most important key instruments in developing and empowering the Indian economy. India has
been enjoying a healthy evolution of payment systems over the past three decades, and the
decade of 2010-20 can said to be the decade of payments in India, as there have been many
defining moments that transformed the payments ecosystem of the country and attracted
international recognition.1 Though the advancements in the payment systems were gradual in the
early days, but the two decades of this century have truly witnessed a revolution. Today, there is
no doubt in saying that the digital payment sector in India is experiencing an unprecedented
growth as digitalization is at its peak. Nowadays, almost every money transaction takes place
often through the mediums of electronic platforms rather than deposit accounts. Such platforms
play a very instrumental role in preventing the overcrowding and overburdening of the banks,
thereby giving boost to digitalization. The Reserve Bank of India (RBI) being the primary
enabler of digital payments has rightfully taken the correct and significant steps and have

1
Payment Systems in India – Booklet, available at: https://www.rbi.org.in/Scripts/PublicationsView.aspx?id=19417
(Last Visited on October 20, 2022).

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adopted proper measured road maps periodically as a developer in the initial years, and as a
catalyst and facilitator in later years, that have resulted in transforming India into a country
riding the crest of a wave in the evolution of digital payments. One of the primary steps was that
of the conceptualization and establishment of institutions, viz. Institute for Development and
Research in Banking Technology (IDRBT), National Payments Corporation of India (NPCI) and
Clearing Corporation of India Limited (CCIL), which had laid the foundation of India's payment
systems. Moreover, the government of India has also encouraged various digital payment apps,
viz. Aadhaar Payment app, UPI App, Bharat Interface for Money (BHIM) app along with private
sector apps like Paytm, Phone pay, Google Pay, etc. in increasing the importance of the
digitalization.2 However, this change on a global level has led to smooth and easy flow of world
trade and commerce. Here, it is quite pertinent to note that with the ever-growing popularity of
digital payments in today’s times, almost every shop from smallest to the biggest is accepting
money through the digital payment modes, making it faster and more reliable. Thus, carrying of
cash is being reduced to a very great extent as the money can be easily transferred from one
place to another through online payments.

II. Payment Banks & E-Wallets: Role and Significance

Payment banks are categorized as one of the most important and significant newest innovations
in the banking sector introduced by the Reserve Bank of India (RBI) on the recommendation of
Nachiket Mor Committee. These banks comprise of a new model of banks, which are
conceptualized by the RBI involving no credit risk, meaning thereby, these banks cannot issue
credit and perform lending activities, but can accept deposits and provides remittances as it falls
under a differentiated bank license.3 In order to ensure that the payments banks work within the
prescribed agenda, several guidelines were laid down by the RBI. So, a payments bank is like
any other bank, but operating on a smaller/restricted scale. The payment banks in India plays a
very pivotal role in furthering the financial inclusion, especially in the rural areas by providing
small savings accounts and payments/remittance services to migrant labour workforce, low-

2
Digital Payments: The Regulatory Framework in India, available at: https://blog.ipleaders.in/digital-payments/
(Last Visited on October 20, 2022).
3
Payments Banks in India, available at: https://www.lawctopus.com/academike/payments-banks-in-india/ (Last
Visited on October 23, 2022).

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income households, etc.4 The significance of payment banks is such that; like other commercial
banks, payments banks are authorized to open savings and current accounts. However, they
would deposit the amount as a Cash Reserve Ratio (CRR) with the RBI. Although they aren’t
allowed to give out credit cards, but they can issue ATM Cards or debit cards. Payment banks
often serve as feeder to universal banks as once Raghuram Rajan, the former Governor of RBI
stated that “payment banks will act as a complementary role to the existing commercial banks,
and would be useful in bringing new players into the system.”

The motivation for introducing payments banks in India came from the lack of access and
prevalent financial literacy. Before initiating and setting payments banks, the Reserve Bank of
India went through several policy considerations to promote financial inclusion. In earlier times,
financial inclusion was a policy concern for various countries worldwide, including India as
financial inclusivity is imperative to socially inclusive growth. Therefore, in this regard, over the
past few decades, the banking sector had undergone tremendous changes with the advancement
of technology, especially after the advent of liberalization and nationalization. The
commencement of virtual or digital banking opened the doorway for users to access banking
services like plastic money, ATM, e-fund transfers and daily account statements. However,
despite this advancement in banking technology, the banking sector in rural areas remained
unregulated. It was reiterated that the people in rural areas are still uncomfortable with this
banking system due to various problems, viz. usability, cost, interoperability, and security of
transaction. Thus, to overcome with such problems, the RBI introduced Payments banks in India
in furtherance of the digital cashless economy campaign subject to certain reasonable conditions
mentioned above. Payments banks came into existence in India in 2015 when the RBI awarded
licenses to 11 applicants to setup these banks specifically to further financial inclusion by
providing small savings accounts and facilitating payments and remittances to the financially
excluded population.  Hence, Airtel was the first entity to have launched a payment bank in
India. In short, we can say that payment banks predominantly ensure internet services and
banking services to every person without any extra charges and also provide a convenient, secure
and Cashless mode of transaction. The government of India is continuously stressing upon the
Digital India initiative in the proliferation of payment banks in the country.

4
Financial Inclusion, RBI Publications (Sept 04, 2008), available at: https://www.rbi.org.in/Scripts/PublicationsView
(Last Visited on October 23, 2022).

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E-Wallets:

E-wallets essentially denotes electronic wallet, which is the process of transferring money
through the medium of electronic communication. However, there is no particular definition of
‘E-wallet’ per se but it can be ascertained that it is the money, which moves electronically. E-
wallets are emerging as one of the most preferred modes of payment amongst the public at large
due to its immense ease of use and wide range of applications, which comes under one of the
most groundbreaking technologies. They’re deemed to be the faster ways to send or receive
money or make payments at online platform. In this contemporary era, e-wallets have completely
taken over the general conventional methods of payment services such as; cash, coins, and
cheques, respectively. Nowadays, everyone prefers e-wallets to make their transactions over the
payment modes, i.e., through Paytm, Google Pay, Phone Pay, etc. in their day-to-day lives. E-
wallets are slowly and gradually becoming a way of life for the people in general. According to
many economists and scholars, it has been predicted in upcoming generations, it has the potential
to become the most sought payment mechanism. Today, the main focus of the government of
India is to make the country, a cashless society. In this regard, the government is continuously
undertaking various measures to promote and encourage such technology. As of now, it can be
asserted that this has been made possible to a great extent via several government-backed digital
apps, viz. BHIM app or Unified Payments Interface (UPI) payments app.

As far as e-wallets are concerned, they are usually divided into 3 types, viz. Closed Wallet,
Semi-Closed Wallets, and Open Wallets.5 Closed wallets are those wallets where the users can
only transact with the issuer of the wallet or other users of the same digital wallet. A company
normally dealing with products or services creates a wallet for its users. The most common
examples of closed wallet are; Amazon Pay and Ola money. A semi-closed wallet allows users to
make transactions at the listed merchants and stores by making both online and offline payments.
Here, the merchants have to sign an onboarding agreement with the issuer of the wallet, for
instance, Paytm Wallets. Last but not the least, open wallets are the ones, which can be used for
everything that a semi-closed wallet is used for, along with an additional feature of being able to
withdraw money from ATMs. The role and significance of e-wallets in these contemporary times
5
Everything You Need to Know About E-Wallet, available at:
https://paytm.com/blog/payments/mobile-wallet/everything-you-need-to-know-about-e-wallet/ (Last Visited on
October 24, 2022).

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is such that; it eliminates the need for carrying a physical wallet to make transactions, and
therefore, also eliminates the requirement for using a bank account for making the transactions. 6
Along with all this, it allows the users to send money to their friends and family across the nation
and worldwide in a very safe and convenient manner.

III. Legal and Regulatory Frameworks for Payment Banks and E-

Wallets in India
Payment systems in India are said to be the lifeline of the Indian economy as they’re recognized
as the well-known means of achieving financial inclusion, thereby ensuring economic benefits
reaching the bottom of the pyramid. In view of the above, India has enacted a separate law for
Payment and Settlement Systems which has enabled an orderly development of the payment eco-
system in the country, that is The Payment and Settlement Systems Act, 2007. The said Act is
the nodal legislation for the regulation of payment systems in India, which empowers the RBI to
regulate and supervise these systems. The main components of the PSS Act, 2007 are; NEFT
(National Electronic Fund Transfer), RTGS (Real Time Gross Settlement), PPI (Prepaid
Payment Instrument), and UPI (Unified Payments Interface), respectively. The process for
introducing a separate legislation for the payment systems was begun a way back in 2014 when
on 10th July, 2014, the Hon’ble Finance Minister Arun Jaitley during the union budget session
declared that “After making suitable changes to current framework, a structure will be put in
place for continuous authorization of universal banks in the private sector in the current
financial year. RBI will create a framework for licensing small banks and other differentiated

6
Ankita Dwivedi, E-wallets: Role and Significance, 5th ed. 2019.

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banks. Differentiated banks serving niche interests, local area banks, payments banks etc. are
contemplated to meet credit and remittance needs of small businesses, unorganized sector,
low-income households, farmers and migrant work force.” 7
After considering the
aforementioned statement, RBI formulated the draft guidelines for differentiated licensing of
payments banks in the private sector, which were released on 17th July, 2014, based on comments
and suggestions received on the draft guidelines. The guidelines primarily laid emphasis upon
the fact that the payments banks will be registered under the Companies Act, 2013 as a public
limited company, and thus, would be licensed under Section 22 of the Banking Regulation Act,
1949. It essentially required that banks go for a restricted license for only deposits, remittances
and payment provisions. Apart from all this, payment banks also fall under the ambit of the
Reserve Bank of India Act 1934, Foreign Exchange Management Act, 1999, and the Deposit
Insurance and Credit Guarantee Corporation Act, 1961.8 Furthermore, the payment banks in
India are also regulated from other relevant statutes/directives, prudential regulations and other
guidelines/instructions issued by the RBI from time-to-time. The said guidelines also talk about
the list of eligible promoters, which include; Prepaid Payment Instruments (PPIs) authorized
under the PSS Act, 2007, Non-Banking Finance Companies (NBFCs), real-estate companies,
telecom companies, etc. Apart from these aforementioned statutory relevant provisions and
regulations, payment banks are needed to maintain a Cash Reserve Ratio (CRR), required to
invest a minimum 75% of its “demand deposit balances” in Statutory Liquidity Ratio
(SLR), and need to hold maximum 25% in current and time fixed deposits with other scheduled
commercial banks. Moreover, the minimum paid-up for payments bank is Rs. 100 cr. and the
minimum promoter’s contribution is 40% for the first 5 yrs. from the commencement of the
business. The foreign shareholding in the payments bank is decided as per the FDI policy for
private sector banks.

Before moving onto the depth of the e-wallets, it is quite pertinent to note that e-wallets
generally fall under the category of a Prepaid Payment Instruments, commonly referred to as
PPIs. PPIs are defined as payment instruments that facilitate purchase of goods and services,
including financial services, remittance facilities, etc., against the value stored on such

7
Ibid.
8
The Legal Framework for E-Payments in India and the Challenges it Faces it, available at:
https://www.techcircle.in/2016/12/01/the-legal-framework-for-e-payments-in-india-and-the-challenges-it-faces/
(Last Visited on October 25, 2022).

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instruments. They are categorized into three types, viz. Closed system payment instruments,
Semi-closed payment instruments, and the Open System PPIs. Here, the main focus will upon
the Semi-closed payment instruments as the e-wallets are placed under it. With reference to E-
wallets, we can see that the legal and regulatory framework for e-wallets is provided in
the “Master Direction on Issuance and Operation of Prepaid Payment Instruments”, which
was first issued by the RBI in 2009 by virtue of Section 18 read with Section 10(2) of the
Payment and Settlement Systems Act, 2007. The 2009 guidelines permitted the non-bank entities
to issue semi-closed instruments (E-wallets) for the first time. These guidelines have seen
numerous amendments since then. Today, as per the latest Amendment, the eligibility criteria of
PPIs are such that; any company incorporated in India, thereby registered under the Companies
Act, 1956 or 2013 can issue and operate PPIs after receiving authorization from the RBI.
According to Regulation 3(1) of the PSS Regulation, 2008, entities are required to seek
authorization from the DPSS of the RBI by submitting an application in the prescribed manner.
The most relevant regulation vis-à-vis e-wallets is that of Tackling Money Laundering. With
regards to this, the entity operating a e-wallet is required to adhere to the RBI Master Direction
on Know Your Customer (KYC), 2016 for customer identification. These Master Directions
provides for a sound framework for the prevention of money-laundering. Since the non-bank
issuers are essentially in the business of operating a payment system, and thus, compliance with
Prevention of Money Laundering Act, 2002 and the Prevention of Money-Laundering
(Maintenance of Records) Rules, 2005 framed thereunder becomes necessary. Another most
important regulation for e-wallets is of Interoperability. The 2017 Regulations had mandated
that interoperability (the ability to use one payment system with another) would be implemented
in phases, and operational guidelines on interoperability would be issued shortly over a span of
time. As per the PPIs guidelines for interoperability, issued by the RBI in 2018, an attempt was
made to make the e-wallets operable with each other, i.e., a user of one wallet can make a
payment to a merchant that accepts a different wallet. The interoperability between the wallets is
enabled through the use of Unified Payments Interface (UPI) facilitated by the National
Payments Corporation of India (NPCI). Last but not the least, the most important regulation for
e-wallets is that of KYC Requirements. Under this requirement, the issuers can issue two types
of semi-closed PPIs based on the level of their KYC compliance. The first type can be issued
with minimum or limited KYC, which would include the customer’s mobile number verified

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through One-Time-Pin (OTP), and a self-declaration of name and a government identification
number to authenticate the account. The amount of funds loaded under this instrument, during
any month, cannot exceed Rs. 10,000/- and the total amount loaded during the whole of financial
year cannot exceed Rs. 1,00,000/- These minimum-detail instruments are mandatorily required
to be converted within 18 months into full-KYC compliant, semi-closed PPIs.

Here, if we specifically talk about National Payments Corporation of India (NPCI) and
Unified Payments Interface (UPI), we see that under the aegis of the RBI, the NPCI was
incorporated in 2008 as a joint venture of banks to act as a cooperative to promote payment
standards in India. In line with its mandate, the NPCI had released several payments products to
the market such as IMPS (Immediate Mobile Payments Service) and the UPI (Unified Payments
Interface). As we all that the UPI is a revolutionary new payment mechanism that provides for a
safe and secure manner of making a payment without sharing the bank account number or IFSC
codes. This is possible through the generation of a Virtual Payment Address (VPA) that can be
obtained by anyone with an account in a participating bank.

IV. Payment Banks and E-Wallets in India

 Successes –
Payment banks and e-wallets altogether have gained huge success in the past 4-5 years a lot in
delivering services to the consumers in general. The successes of payment banks in India are9: -

 Enhanced Financial Freedom: - In a country gripped with a Digital revolution,

payment banks play a very important role in facilitating banking facilities to the people
living in the remote areas, especially in villages. Since its establishment, it has been
viewed as a hope for the thousands of Indians who’re lacking basic facilities to perform
transactions faster and more efficiently. With the advent of payment banks, the burden of
cash withdrawals and spending limit is greatly reduced since payments get auto-debited
without the hassles of juggling with money and searching for ATMs. As more non-
banking companies enter into the banking sector, there is more freedom for people to

9
Dheerendra Kumar Baisla (LL.M. Student, Galgotias University) – Article on “Successes and Challenges of
Payment Banks in India”.

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 perform fast, secure transactions without having to rely on tedious bank procedures.
Since payment bank branches do not require infrastructure to set up, and thus, they bring
financial freedom to many people as much as possible.
 Banking the Unbanked: - There are still people in India who do not have bank
accounts and they still are performing their daily transactions using cash. So, payment
banks predominantly provide an opportunity for these unbanked individuals to experience
banking without having to go through the entire procedure of opening a bank account.
Migrant workers and people coming from very low-income households are now very
easily paying bills, insurance premiums, and are performing domestic and international
remittances using just their KYC number and Mobile Number.
 Performing a wide number of transactions seamlessly: Payments Bank
accounts are used for a wide number of online transactions including mobile recharges,
bill payments, supermarket bill payments, sending money worldwide, etc. They act as
mobile wallets for easy payment of goods and services online.
 Reduced Frequency of Banking Frauds: With the coming of the payment
banks, banking frauds have been reduced to large extent. People who’re less accustomed
with safety procedures and guidelines pertaining to online transactions didn’t worry about
losing their money since there is very less risk involved in performing a payment bank
online payment as payment bank accounts take only small deposits.

E-Wallets

E-wallets has gained huge success since the time of demonetization in November, 2016. There
has been an exponential growth in the field of digital payments products in these few years. The
ability to create a simple, easy to use, and complete end to end digital customer journey has been a
key reason for the growing adoption of digital payments. Recently, the successfulness of e-wallets
can be reiterated from the covid times when covid had brought into focus the benefits of digital
payment products in a time when face to face contact was minimized. So, in this regard, the
government of India has consistently maintained in pushing digital payments as a key policy
objective. The Union Budget (2021) earmarked INR 15 billion for schemes towards incentivizing
digital payments. Several E-wallets including Paytm, Google Pay, Phone Pay, etc. has been now

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operational all over the country in full-swing as nowadays everyone has an access to them.
Furthermore, the relevance of e-wallets in the country is such that; it is making and helping India in
becoming a cashless society as soon as possible. In these contemporary times, e-wallets are
considered to be the safest and most convenient mode of making payments.10

 Failures –
Payment banks and E-wallets have quite failed as well at some point of time in rendering their
services to the consumers at large. If we look upon the failures of payments bank, we see that
there is huge competition everywhere in banking field, as payment banks are leading to high
competition in the deposits sphere and devour margins. Although payment banks are licensed to
argument saving deposits, but if they venture close to poaching rates, then it might result in loss
of a chunk of lower-priced deposits by commercial banks and subsequently hamper their ability
to transmit rates and offer loans at low interest rates. Also, Payments Banks interest rates are
high for savings deposits and not for long-term fixed deposits. Since they are fully de-risked
from bad loans, customers move their cash payments to payments banks. In urban areas, people
perform all their cash payments via payments bank deposits leading to commercial banks
suffering a loss of low-cost savings and idle deposits. Moreover, it does not allocate for loans or
credit cards unlike normal banks. Furthermore, the payments-only model of payments banks
relies only on the low-ticket account balances for profits. Customers stick around less on their
payments accounts and are mostly chasing their commercial banks for everything else other than
payments. Convenience and Pricing are the only two things prompting payments banks due to
which the payments banks are forever busy in maintaining a fine balance between cost of
acquisition of granular liabilities, maintaining competitive prices on transaction fees, and being
ever ready to reach critical mass in the shortest time.

E-Wallets

10
Raghu Agrawal & Anuj Sharma (Assistant Professor, Symbiosis Law School) – Journal on “E-Wallets and their
Relevance in this Contemporary World”.

Page 13 of 21
There are no as such failures, we can see in digital wallets, but when it actually came into being
after demonetization, there were certain issues raised pertaining to the use of e-wallets. The
primary concern was with regards to the privacy as there weren’t laws regulating and protecting
the misuse of the information generated through digital payments. Thus, it was difficult at that
time to trust the digital payments. Second major concern was w.r.t data security, as there were
no laws regarding this as well. A lot of people don't trust the cashless transactions because there
is no law promises them security. The main question arises is that what if the transactions are
done electronically, and then there is a breach, revealing all the purchases and transfers made out
in public. Though banks and payment companies attempt to keep all the data safe, but they don't
have liability for it the way such institutions have in countries like the US and those in the
Europe. India too needs a law-making various agency, including government, responsible for
data safety because people can trust digital payments. Another problem arose was that of web
services as they were too complex. For most people in India, the web services are too complex to
use. Almost everything is in English and even then, it requires a level of familiarity with
computers and internet. There are passwords everywhere. There is confusing user interface in
various services. Unless India popularizes the web services in local languages and teach its
population the ways of digital world, and these can be complex for even people who use a
smartphone, it is difficult for the cashless transactions to take off outside the urban centers.

 Challenges –
Payment banks in India are currently working in full-swing since its establishment by the
Reserve Bank of India (RBI) in 2015. From 2015 to 2022, there has been a lot of obstacles,
which came in the path of payments bank while carrying on its operation, and thus, uptill now, it
has not been an easy task for them to operate in the current environment. They have faced many
challenges in between and are facing now as well. These include;

 Partial Fulfillment towards Financial Inclusion: - Financial inclusion being a

wider term, is much more than mere “payment/money transfer”. Financial inclusion
means access to complete bouquet of financial services — banking, investment,
insurance, pension – everything. But that’s very difficult to achieve through Payment
bank system because the model does not allow payment bank aspirants to lend money for
productive purposes.
Page 14 of 21
  Non-Lucrative for Non-Telecom Firms: - Non-Telecom entities is at a
disadvantageous position compared to Telecom firms when it comes to setting up
Payment banks because they make significant investment towards expanding their
distribution network, technology infrastructure and brand building. The earnings from
remittance services are not sufficient for them to cover up distribution, marketing and
technology related cost for at least few initial years.

 Stiff Competition: - Today, the payment banks are facing cutthroat competition from
the large players like commercial banks and other players who’re operating through a
large network of franchises. The main reason behind the competition becoming so intense
between them is that the commercial banks are expanding into semi-urban areas – a key
market for payment banks.
 Conflict of Interest: - Payment banks model can generate conflict of interest arising
out of difference in mobile service providers and Payment bank service providers. If the
mobile service provider does not cooperate and charges higher for banking services for
the account maintained in other group of service provider, then the whole payment bank
model would fail to generate the desired result.

E-Wallets

 Fraud and Security: - The biggest concern about the using of e-wallets amongst the
consumers is that of its breaches and risks for data security. So, in this regard, the govt. of
India is now regularly trying to introduce new ways for secure transactions and upgrading
their current modes accordingly so that safety could be assured while making
transactions.
 Awareness and Adoption: - India is a cash dominant society, even though there is a
rapid increase in using digital payment modes, there is still a lack of awareness among
people concerning security, data privacy, etc. which is leading to them believing that
making payments via cards or cash is better than paying mobile application. Consumers
still don’t consider mobile wallets as a safe mode for payment and the mobile wallet
industry needs to invest a good amount of time and effort to overcome this. Though there
is a clear dominance of using cash over other methods for transactions, many of the

Page 15 of 21
 consumers prefer using credit or debit cards for transactions as the next option. There are
certain limits for mobile payments, which are wider for using cards. So, competition with
debit/ credit cards can be another key point to the further adoption of mobile wallets.
 Rise of Unified Payment System (UPI): - Unified Payment Interface is
developed by NPCI, India and can be considered as the biggest competitor for mobile
wallets. Though UPI has its own share of problems, in the long run, it can be definitely
considered as a major challenge for mobile wallets.

V. Guidelines for Registration of License for Payments Bank

1. Registration, licensing and regulations:

The payments bank will be registered as a public limited company under the Companies Act of
2013 and licensed under Section 22 of the Banking Regulation Act of 1949, with specific
licensing conditions limiting its activities to primarily accepting demand deposits and providing
payments and remittance services. The Banking Regulation Act, 1949; the Reserve Bank of India
Act, 1934; the Foreign Exchange Management Act, 1999; the Payment and Settlement Systems
Act, 2007; the Deposit Insurance and Credit Guarantee Corporation Act, 1961; and other
relevant Statutes and Directives, Prudential Regulations, and other Guidelines/Instructions issued
by the RBI and other regulators from time to time will govern it. Once the payments bank begins
operations and is determined to be suitable in accordance with Section 42 (6) (a) of the Reserve
Bank of India Act, 1934.

2. Objectives:

Transaction and savings accounts are required for the underserved population. Furthermore,
remittances have both macroeconomic and microeconomic benefits for the region that receives
them. These advantages are diminished by higher transaction costs associated with remittances.
As a result, the primary goal of establishing payments banks will be to increase financial
inclusion by offering I small savings accounts and (ii) payments / remittance services to migrant
labor workforce, low-income households, small businesses, other unorganized sector entities,
and other users, by enabling high volume-low value transactions in deposits and payments /
remittance services in a secure technology-driven environment.

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 3. Eligible promoters:

Existing non-bank Pre-paid Payment Instrument (PPI) issuers authorized under the Payment and
Settlement Systems Act, 2007 (PSS Act); and other entities such as individuals/professionals;
Non-Banking Finance Companies (NBFCs), corporate BCs, mobile telephone companies, super-
market chains, companies, real sector cooperatives; and public sector entities may apply to
establish payments banks. To establish a payments bank, a promoter or promoter group can form
a joint venture with an existing scheduled commercial bank. However, under Section 19 (2) of
the Banking Regulation Act of 1949, a scheduled commercial bank may invest in a payments
bank.11

If a government entity wishes to establish a payments bank, it must first obtain the necessary
government approvals before submitting its application. To be eligible to promote payments
banks, entities and their Promoters / Promoter Groups must be 'fit and proper' as defined in the
SEBI (Issue of Capital & Disclosure Requirements) Regulations, 2009. The RBI would evaluate
the applicants' and group entities' 'fit and proper' status based on their previous track record of
sound credentials and integrity; financial soundness; and a successful track record of at least 5
years professional experience or in running their businesses.12

11
The Legal Framework for E-Payments in India and the Challenges it Faces it, available at:
https://www.techcircle.in/2016/12/01/the-legal-framework-for-e-payments-in-india-and-the-challenges-it-faces/
(Last Visited on October 28, 2022).
12
A. Muthu Kumaran (Assistant Professor, Nalanda University) – Journal on “Digital Payment and their
significance”.

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 VI. Conclusion
The introduction of payment banks and e-wallets have indeed proven to be one of the most
successful steps of the government of India in developing and empowering the Indian economy.
The evolution of the payments bank and advent of e-wallet led to an easy and safe method for the
public at large in making payments. The payments bank being a part of the banking sector has
contributed a lot in furthering the financial inclusion, especially in the rural areas by providing
small savings accounts and payments/remittance services to migrant labour workforce, low-
income households, etc. Similarly, e-wallets made the lives of the people easy by providing the
facility of making safe and secure payments through online platforms. Throughout this journey,
the Reserve Bank of India has played the role of a catalyst and facilitator, regulator and
supervisor, as the occasion demanded, towards achieving its public policy objective of
developing and promoting a safe, secure, sound and efficient payment system. Reserve Bank has
always fostered innovation and growth of payment and settlement systems without deviating or
losing its focus towards constant improvement in safety, security, soundness, efficiency and
effectiveness. All these efforts have resulted in availability of a wide choice of 'anytime and
anywhere' interoperable payment systems for the common man at reasonable rates. Moreover,
significant upgradation was achieved by way a of enhancement of acceptance infrastructure to
boost financial inclusion and adoption of digital modes for Government payments backed by the
national identity authentication, i.e., Aadhaar framework. The bouquet of digital payment
products that is now available in the country and that enriches the consumer experience with
choices, convenience and confidence in the digital payment ecosystem, owes a lot to these
institutions, viz. Institute for Development and Research in Banking Technology (IDRBT),
National Payments Corporation of India (NPCI) and Clearing Corporation of India Limited
(CCIL), which had laid the foundation of India's payment systems. To win the trust of customers,
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an expanding payment system was overlaid with a reliable supervision and settlement
mechanism. Interoperability among payment systems facilitated unparalleled ease of transactions
while robust customer protection measures have made India's retail payment system one of the
safest in the world. Lastly, it should be reiterated that the journey has only just begun, but India
is already seen as a player at the global forefront in the domain of digital payments.

VII. Bibliography
 BOOKS:
 Arpita Mukherjee, Payment Banks in India: Issues and Challenges, 4th ed. 2018
 Shiv Kumar Verma, Payment Banks & E-wallets in India, 2nd ed. 2017
 Ankita Dwivedi, E-wallets: Role and Significance, 5th ed. 2019.
 ARTICLES/JOURNALS:

 Dheerendra Kumar Baisla (LL.M. Student, Galgotias University) – Article on

“Successes and Challenges of Payment Banks in India”.
 Nidhi Bagariya & Swarup Santra (Assistant Professor, Department of Economics,
Delhi University) – Article on “Payments Bank in India: Issues and Challenges”
 A. Muthu Kumaran (Assistant Professor, Nalanda University) – Journal on “Digital
Payment and their significance”
 Raghu Agrawal & Anuj Sharma (Assistant Professor, Symbiosis Law School) –
Journal on “Payment Bank – A success or Failure”
 WEB SOURCES:
 https://blog.ipleaders.in/digital-payments/
 https://www.rbi.org.in/Scripts/PublicationsView.aspx?id=19417
 https://www.lawctopus.com/academike/payments-banks-in-india/
 https://paytm.com/blog/payments/mobile-wallet/everything-you-need-to-know-about-
e-wallet/
 https://www.techcircle.in/2016/12/01/the-legal-framework-for-e-payments-in-india-
and-the-challenges-it-faces/

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 *****

Annexure

Devansh Singh –

1. Payment Banks & E-wallets in India: Role and

Significance
2. Legal and Regulatory Frameworks for Payment
Banks and E-Wallets in India
3. Challenges faced by Payments Bank and E-wallets
in India

Maahi Trivedi –

1. “Successes” of Payments Bank and E-wallets in

India
2. “Failures” faced by the Payments Bank and E-
wallets in India
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3. Guidelines for Registration of License for Payment
Banks

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