In order to provide better security and safety towards wallet based transactions, Govt. of India had initiated talks between mobile wallet companies and insurance companies. Govt. had aimed to create a framework wherein every e-wallet transaction is covered under insurance in case any unexpected thing happens.
However, it seems that this suggestion is not welcomed. As per insider reports coming in, mobile wallet companies have rejected this proposal, claiming that their transactions are safe enough.
The Logic Of E-Wallets Against Insurance
Just like credit card companies provide insurance for some high-usage customers against fraud, Govt. had suggested similar insurance for e-wallets as well.
But, the idea was rejected due to mainly three reasons:
a) Mobile wallets is a relatively new concept in India, and insurance companies are still not able to properly understand it, in order to gauge the risks involved. Hence, risk assessment cannot be done, which means that insurance cover cannot be provided. This seems a valid reason, for time being. A Govt. official said, “They (wallet companies) got back to us and said since it is a new line of business, insurance companies are finding it difficult to provide risk assessment and, therefore, asking for high premiums..”
b) Due to lack of information, insurance companies are demanding high premiums for the insurance factor, which can create a big hole in the profitability of the mobile wallet companies. The margins are already wafer-thin, and they simply don’t want an additional overhead for them.This reason is also justified to some extent.
c) Mobile wallet firms are claiming that their transactions are safe and that they don’t need any insurance. Vineet Singh, chief business officer of MobiKwik said, “We reiterate that despite the current growth of the wallets, the user money is safe..” This can be a bit of dicey situation because we have seen and read how mobile wallet can be used for fraud, and how money is often stuck for months before it is released to the rightful owners. Paytm hasn’t shared any comment on this matter.
Govt.’s Security Guidelines For Mobile Wallets
After the suggestion of insurance, Govt. has also released a draft of security guidelines for all mobile wallets operating in India.
Termed as Information Technology (Security of Prepaid Payment Instruments) Rules 2017, the draft was released by Ministry of IT and is right now open for public consultation till March 20th.
Some of the suggestions made in this draft include standards of security which need to be followed by every mobile wallet, creation of a centralised customer grievances redressal system, two-factor authentication of every transaction, eKYC of every user and more.
Although insurance was not part of this draft, but several financial experts have said in the past that a safety framework is much required for failed, fraud transactions on mobile wallets.
Till now, mobile wallet firms have been enjoying a free run, without any regulations or rules controlling them. But as the number of transactions increase (Overall, 213 million in December, 2016), so are cases of frauds, incomplete transactions and it is high time that a regulation be created to safeguard customer’s interests and their money.
Are e-wallet firms right in rejecting insurance framework for their transactions, as suggested by the Govt.? Do let us know by commenting right here!
Update: Paytm has contacted us, and informed that they are soon going to launch free insurance, which shall cover wallet balance for all users. Krishna Hegde, Vice President – Paytm said, “Over the years, we have worked to introduce the convenience of digital payments to all customers by offering the quickest, most intuitive and safe payment experience. This insurance cover on Wallet balance will ensure that the user is covered should there be any misuse of the account. Along with being the fastest and most convenient way of paying, this cover will provide additional comfort and security to our millions of users.”
This is a great initiative from Paytm, which, hopefully should be adapted by other digital wallets as well. The cost of technological errors or failures should not be borne by the end user. We will keep you updated as we receive more updates on this issue.