💰 PPIs: Like Cash, But Better?
The best of physical and digital payment methods, PPIs, are lately gaining a lot of traction. Here’s how they are set to transform the payment space.
We have come a long way from using the barter system to buy things.
Now, even cash has become redundant.
While digital transactions have made things much much easier for us, it has also exposed us to major risks like data hacking.
So, should we go back to using cash?
Nah, there's a better option.
Prepaid payment instruments.
Like Cash, But Better 💸
Think of prepaid payment instruments (PPIs) like your piggy bank.
You can add your pocket money to it when you get it and then use it as and when you need it.
The only difference: things are digital.
You can either add money to these instruments or they already come loaded with cash, depending on the instrument you are using.
For instance, if you are using Amazon Pay, you will have to add money to the wallet yourself. But if you get an Amazon gift card, the money is pre-loaded.
What’s the Use Case?
Can be used as gift vouchers (Amazon gift voucher)
Can be used as mass transit passes (Metro Cards)
Can be used as e-wallets to buy things from a specific marketplace (Swiggy Money) or multiple marketplaces (Sodexo)
Can be used like debit cards (FamPay)
Right now, we have three kinds of PPIs:
Small PPIs (with no cash loading facility): These are low-maintenance PPIs that only require your mobile number and ID card. Banks and non-banks can issue them, but you can only store Rs. 10,000 at a time and if you want to add more cash, you have to do it through the bank.Â
Small PPIs (with cash loading facility): Same goes for these PPIs, except you can reload these using cash. But you have to convert them into full-KYC PPIs within 24 months. If you don’t do this, you will no longer be able to reload cash.
Full KYC PPIs: If Rs. 10,000 isn't enough money for you then these PPIs are for you. But to get access to these you have to comply with all the know-your-customer (KYC) regulations. If you do so, you can have a balance of Rs. 2,00,000.
Why We're Talking About This 🤨
PPIs are gaining traction like anything.
Especially since last year when the RBI finally consolidated regulations for this space.
There are 36 players in this space right now including Amazon, Swiggy, Bajaj Finserv and a lot of other startups like FamPay, which allows parents to input pocket money into their children’s debit cards is a PPI.
Mahila Money is yet another startup that has developed a PPI to help women without bank accounts make digital transactions.Â
The entry of these startups has taken the value of PPI transactions in India from Rs. 62 billion in 2011-2012 to Rs. 2,150 billion in 2020-2021 (Source: RBI Data Warehouse).
What's the Hype About PPIs? 🤔
First, because of our mentality. A lot of us, especially in Tier-2 and Tier-3 cities, are inherently scared of sharing bank details online. And reasonably so. Hacks have become common and data is very vulnerable.Â
PPIs solve this problem by removing banks and bank data from the equation entirely. Anytime you make a transaction, the money goes directly from the e-wallet or gift voucher, which is not connected to your bank account. So, it is like using hard cash, but only online.Â
Second, companies are really into this model. Why? Because it creates brand loyalty. Companies can create closed PPIs (where the money can only be used for specific purposes). Then whenever a customer adds money to a company's wallet, they have to use it at the company's store itself (think Swiggy Wallet). Even if the customer returns any item, refunds can be directly added to their e-wallets, ensuring that they spend the money only on the company's products.
The Ifs and Buts 👀
PPI companies are facing stiff competition from payments banks like Paytm, Jio, and others.
But wait, how are these companies different?
Payments banks like Paytm allow you to add money to your e-wallet or pay directly from your bank account or debit card.Â
Their proposition is that they make things easier. You don't have to recharge your wallet again and again. In case you run out of money, you can easily use money from your bank account.
This ease could convince more people to opt for payments banks.
Plus, players like Jio and Paytm have a lot of cash to burn, which again gives them an advantage over smaller upcoming PPI companies.Â
Also, these PPI companies have a limited revenue stream.Â
You see, usually, payments systems like RuPay and Visa earn money through something called a merchant discount rate.
This is the rate that merchants have to pay to these companies if a user uses their card to make payments through them.
But PPIs do not get any merchant discount rate.
So, how do they make money?
Well, they do keep a track of how, when, and where you are spending your money.Â
This data is invaluable.Â
Having only this data as its revenue stream is risky, especially when there are so many players in the market.Â
However, companies are still soldiering on, developing tech, and finding alternative sources of revenue to expand, because they believe this model has promise.
But will this belief translate to reality?Â
In A Line: PPIs perfectly combine the security of using cash with the ease of digital payments which is why customers and brands are all betting big on this.
Quick Question: Will PPIs finally lead to a payments revolution in India and help us quit cash? Or will cash always be king?
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