There is no cash in your UPI wallet. All cash that you "deposit" into your bank is converted into "bank money" in the form of a deposit that earns interest (a disincentive for the account holder to demand cash back from the banking system) as part of a savings account. UPI essentially enables inter-bank transfers. This is what happens when you use a bank wallet or G-Pay. They simply pass the payment through.

Ateesh Tankha

Thanks Shrikanth.

Ateesh Tankha

Gaurav, thanks fo this. I have three concerns with regard to Onecard's strategy: 1. They are not a banks's co-brand partner. Rather, they offer banking functionality as a service, and as such they are a white label partner for smaller banks. Working on the assumption that the bank still pays for risk controls, fraud redressal, customer service and rewards, FPL Technologies cannot expect to take home 80% of the revenues. 2. If the breakup of revenues for regular Indian credit card issuers is Interest income (40%), Transaction fees (40%), and (I assume) 20% from annual fees, late fees, cross-sell product commissions, etc), losses may be inevitable. 3. With just merchant-funded rewards, it will be very difficult to break ground with the major banks, who tend to rely on a mix of affluent rewards, cashback and other seemingly exclusive incentives. Furthermore, having managed a large merchant-offer program in a previous life, I can assure you that FPL is subsidising the same and, as a result, digging a hole (like the digital wallets of a few years ago - including Paytm) from which firms can seldom extricate themselves.

Ateesh Tankha

This company is taking advantage of the fact that there are no smartphones/ lack of UPI literacy and usage. The GOI/ RBI should really intercede.

Ateesh Tankha

Rounak, thanks for this. This article is detailed enough to beg the question: How can the RBI issue payment bank licences and then not force the entity to work with a financial institution to lend to its customers? The whole purpose of a Payments Bank is to drive financial inclusion at the bottom of the pyramid, or is it - please correct me here if necessary - to allow startups to sneak through a loophole in the written mandate and collect deposits and fees at will? Despite their questionable risk models, distribution methods, et al, Paytm and Airtel are lending. If an entity's mandate is to distribute loans (in addition to other financial services), allowing it to collect deposits (75% of which is invested in risk-free government securities), and charge fees of INR 325 for an average CASA holding of INR 1150 (to say nothing of the remittance and micro-ATM/ AEPS fees ... because UPI is not known/ unworkable in these areas) is unconscionable. At an average deposit holding of INR 1,150, one needs to ask what financial services are absolutely necessary, if small loans are not part of the offering. It's actually a perfect balance of being able to exploit the financially illiterate and being allowed to price gouge the financially dependent. Is it any wonder that it is profitable? In fact if some of its executives chose to trim their emoluments, the PAT margin would be considerably higher.

Ateesh Tankha

Arundhati and Gaurav, thanks for the article. I found it very informative. Two points: - Despite the equated daily instalments (EDIs) what is the average tenor of the merchant loans? This can have a major impact on default rates and therefore profitability, especially when it comes to SMEs. Or is this too early in the acquisition stage to even have a reliable default rate? - If Paytm is really successful in improving the quality of borrower profiles, would banks/ NBFCs not want to cut out the middleman? Reaching out to good quality leads through a nexus of intermediaries only drives up costs and makes the primary lender less competitive. Moreover, a good quality prospect may be better served by a bank/ NBFC directly.

Ateesh Tankha

Anand, thanks for the article. Having worked with ITC for many years, it was good to read about the current fortunes of its stock price. And while I agree that the company is still viewed as a tobacco major, there are a few reasons I believe that perception rather than public policy will play a big role in determining its future. First, GOI couldn't possibly get a sweeter deal on taxes. Excise collected on cigarettes are scooped up before the cigarettes leave the factory gate. The company virtually pays for the infrastructure that collects and shares these revenues with the government. Along with the 28% GST component that GOI accrues on cigarette sales, it will be very, very difficult for any dispensation to surrender the thousands of crores it is guaranteed in this way every year. Second, ITC's management philosophy and competence is sound, which is more than can be said for many other companies. At some stage, when an investor tires of speculating and realises that slow, but steady, growth is the only really sustainable growth, ITC rises to the top with many others. Compared to other "just screwed you over with my IPO" start-ups and "just escaped the regulatory arm of the law" trading and manufacturing firms, ITC does not seem so bad after all.

Ateesh Tankha

You are correct in stating that it is the business of the state to interfere when giant digital intermediaries try to exploit the lack of regulation to become a law unto themselves. But that is not the focus of the article. We have taken exception to the design of the bill. It regulates entities while providing the government the ability to operate with impunity. Despite the best intentions of the government, this allows too many opportunities for wilful misuse, both by GOI and by umbrella corporations which may become first party data custodians.

Ateesh Tankha

It is correct to assume that acting together, these laws are “designed to” keep citizens safe, ensure competition thrives and make intermediaries responsible. However, the design is a bit of a pastiche, having been adapted from smaller states (European countries and US states) with a) smaller populations where checking for misuse and policy accountability by the public is easier and faster b) there are existing “privacy awareness” ecosystems, where thinktanks and groups are constantly collecting data on the implementation and effectiveness of these laws. In the absence of these public support mechanisms in India, we have tried to draw attention to the potential misuse of policies as well as to players over the last two years. Big Data regulation can be utilized to restrict rather than liberate by several countries, depending on the sophistication of their enforcement. The greatest threat is to countries with high cultural and ethnic diversity, of which India is one such. Ateesh and Syagnik

Ateesh Tankha

Agree. But in a government controlled garden, these players may be willing to be subservient to the state to survive. They will not be fined because it will not be in their best interest to break the law. And they may even be willing to play second fiddle to larger e-commerce and physical commerce giants that will - being local entities - manage the show. Advertising revenues may become a subset of the overall umbrella business - where advertising, sale and payments revenues will become totally indistinguishable.

Ateesh Tankha

This is true. But entrusting one’s privacy protection to Apple may be as scary as letting it be abused by a host of smaller players. 20 years ago, even Google was a knight in shining armour.

Ateesh Tankha

Uday, Thanks for your comment. I would just like to assert that this was not meant to be a piece of reportage. We were never going to collate the views of others. Those who view this piece of impending legislation favourably may write their own article. The conclusion we reached, after reading the views (and silences) of many of those involved (directly and indirectly), was based on weighing things in the balance and finding a rationale for why the bill had taken its current form. And it really wasn’t easy for us to take this position because the two of us have been shouting ourselves hoarse - over the last 2 years in article after article - trying to get GOI to regulate the significant digital intermediaries. Certainly, GOI’s intention to digitise India to make process, control and surveillance is not moot. As such, even if their underlying motivation is efficiency - holding fewer parties responsible for the collection, storage and harvesting of data - there is a great chance that this intention can be misused and abused by this or a subsequent government, as well as by the umbrella corporations that stand to gain the most from this. In any case, “Neutral Experts” are the sort of expert that led Europe into WWII. We had no intention of joining that club.

Ateesh Tankha

There is no cash in your UPI wallet. All cash that you "deposit" into your bank is converted into "bank money" in the form of a deposit that earns interest (a disincentive for the account holder to demand cash back from the banking system) as part of a savings account. UPI essentially enables inter-bank transfers. This is what happens when you use a bank wallet or G-Pay. They simply pass the payment through.

Ateesh Tankha

Thanks Shrikanth.

Ateesh Tankha

This company is taking advantage of the fact that there are no smartphones/ lack of UPI literacy and usage. The GOI/ RBI should really intercede.

Ateesh Tankha

Rounak, thanks for this. This article is detailed enough to beg the question: How can the RBI issue payment bank licences and then not force the entity to work with a financial institution to lend to its customers? The whole purpose of a Payments Bank is to drive financial inclusion at the bottom of the pyramid, or is it - please correct me here if necessary - to allow startups to sneak through a loophole in the written mandate and collect deposits and fees at will? Despite their questionable risk models, distribution methods, et al, Paytm and Airtel are lending. If an entity's mandate is to distribute loans (in addition to other financial services), allowing it to collect deposits (75% of which is invested in risk-free government securities), and charge fees of INR 325 for an average CASA holding of INR 1150 (to say nothing of the remittance and micro-ATM/ AEPS fees ... because UPI is not known/ unworkable in these areas) is unconscionable. At an average deposit holding of INR 1,150, one needs to ask what financial services are absolutely necessary, if small loans are not part of the offering. It's actually a perfect balance of being able to exploit the financially illiterate and being allowed to price gouge the financially dependent. Is it any wonder that it is profitable? In fact if some of its executives chose to trim their emoluments, the PAT margin would be considerably higher.

Ateesh Tankha

Anand, thanks for the article. Having worked with ITC for many years, it was good to read about the current fortunes of its stock price. And while I agree that the company is still viewed as a tobacco major, there are a few reasons I believe that perception rather than public policy will play a big role in determining its future. First, GOI couldn't possibly get a sweeter deal on taxes. Excise collected on cigarettes are scooped up before the cigarettes leave the factory gate. The company virtually pays for the infrastructure that collects and shares these revenues with the government. Along with the 28% GST component that GOI accrues on cigarette sales, it will be very, very difficult for any dispensation to surrender the thousands of crores it is guaranteed in this way every year. Second, ITC's management philosophy and competence is sound, which is more than can be said for many other companies. At some stage, when an investor tires of speculating and realises that slow, but steady, growth is the only really sustainable growth, ITC rises to the top with many others. Compared to other "just screwed you over with my IPO" start-ups and "just escaped the regulatory arm of the law" trading and manufacturing firms, ITC does not seem so bad after all.

Ateesh Tankha

You are correct in stating that it is the business of the state to interfere when giant digital intermediaries try to exploit the lack of regulation to become a law unto themselves. But that is not the focus of the article. We have taken exception to the design of the bill. It regulates entities while providing the government the ability to operate with impunity. Despite the best intentions of the government, this allows too many opportunities for wilful misuse, both by GOI and by umbrella corporations which may become first party data custodians.

Ateesh Tankha

It is correct to assume that acting together, these laws are “designed to” keep citizens safe, ensure competition thrives and make intermediaries responsible. However, the design is a bit of a pastiche, having been adapted from smaller states (European countries and US states) with a) smaller populations where checking for misuse and policy accountability by the public is easier and faster b) there are existing “privacy awareness” ecosystems, where thinktanks and groups are constantly collecting data on the implementation and effectiveness of these laws. In the absence of these public support mechanisms in India, we have tried to draw attention to the potential misuse of policies as well as to players over the last two years. Big Data regulation can be utilized to restrict rather than liberate by several countries, depending on the sophistication of their enforcement. The greatest threat is to countries with high cultural and ethnic diversity, of which India is one such. Ateesh and Syagnik

Ateesh Tankha

Agree. But in a government controlled garden, these players may be willing to be subservient to the state to survive. They will not be fined because it will not be in their best interest to break the law. And they may even be willing to play second fiddle to larger e-commerce and physical commerce giants that will - being local entities - manage the show. Advertising revenues may become a subset of the overall umbrella business - where advertising, sale and payments revenues will become totally indistinguishable.

Ateesh Tankha

This is true. But entrusting one’s privacy protection to Apple may be as scary as letting it be abused by a host of smaller players. 20 years ago, even Google was a knight in shining armour.

Ateesh Tankha

Uday, Thanks for your comment. I would just like to assert that this was not meant to be a piece of reportage. We were never going to collate the views of others. Those who view this piece of impending legislation favourably may write their own article. The conclusion we reached, after reading the views (and silences) of many of those involved (directly and indirectly), was based on weighing things in the balance and finding a rationale for why the bill had taken its current form. And it really wasn’t easy for us to take this position because the two of us have been shouting ourselves hoarse - over the last 2 years in article after article - trying to get GOI to regulate the significant digital intermediaries. Certainly, GOI’s intention to digitise India to make process, control and surveillance is not moot. As such, even if their underlying motivation is efficiency - holding fewer parties responsible for the collection, storage and harvesting of data - there is a great chance that this intention can be misused and abused by this or a subsequent government, as well as by the umbrella corporations that stand to gain the most from this. In any case, “Neutral Experts” are the sort of expert that led Europe into WWII. We had no intention of joining that club.

Ateesh Tankha

Thanks Pratap. Great read. The article is very informative. But is the endgame for Google only research data? I'm also unsure about the imminent threat that this Google-Government nexus represents. The 2-3 warnings about privacy are standalone and not self-explanatory. What are the most odious infringements by Google/ Meta likely to be in a state-sponsored data protection regime where personal privacy protection is sacrificed in the interests of "greater convenience, security and accountability"?

Ateesh Tankha

It's a nice article that explains industry angst. I'd like to offer a few points, however, that may clarify some of the points that you have raised. 1. In Europe as well as in India, there is a preponderance of small merchants (many of whom continue to run the majority of their businesses offline). As such, they have no immediate interest in tokenisation. Some form of encryption, coupled with placing the burden of hacker fraud with issuers and acquirers, will suffice for most. So Europe has not seen it fit to mandate tokenisation in all instances. 2. For all the unreadiness and unwarranted hurry that merchants and other industry players complain of, there is no doubt that security is, and should be, the number one priority that payment ecosystem players should worry about - not the convenience of speed or lower fees. With online fraud becoming an area of serious concern, tokenisation presents a near foolproof way to secure the system. In fact, once complete, the costs of PCI compliance and the number of false declines (on account of stringent fraud filters) are both likely to reduce. 3. Lastly, a little too much is being made of the spectre of guest checkout. If a merchant can request a token, it can just as easily request the 16-digit PAN from the secured token vault in case of a dispute or chargeback. If no such system has been worked out with the issuing banks and other payment players, that constitutes industry oversight, not RBI overreach.

Ateesh Tankha