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Banks blame pre-paid issuers of misusing BC model

Banks are crying foul and accusing pre-paid issuers (PPIs) of blatantly misusing the business correspondent (BC) model. At least three banks – one large state-run lender and two other from the private sector – have recently written to the Indian Banks’ Association (IBA) highlighting some of the malpractices by certain PPIs.

This comes at a time when the Reserve Bank of India (RBI) is planning to offer licences to create payments banks in the country. 

“There is an immediate need to repair the methods adopted by some of these fly-by-night operators. They are poaching BC agents of banks, allowing agents to charge fees arbitrarily, and evading taxes. While transactions are getting done through PPIs, in case of failed money transfers banks are being held responsible,” said a banker familiar with the development.

Banks have been creating networks of BC agents to offer services like remittance. Typically, a bank chooses a partner to work as its BC agent, trains the agent, and put up its signage at the agent’s outlet. Customers recognise the agent through the signage and remit money by paying legitimate fees and taxes. Following money transfers, customers get SMS receipt from the bank.

PPIs – who were allowed to offer services like utility bill payment, mobile top-up, railway ticket booking, etc. – have now been given the permission to provide domestic money transfer services. Bankers claim that some PPIs have now started poaching banks’ BC agents. 

“The efforts made by banks in building BC network will go waste if agents are poached away by PPIs. Also, while agents are branded as partners of banks they are actually working for PPIs,” said a banker with one of the banks that has written to IBA on this issue.

He added that some BC agents (who use PPI agency for other services like bill payment) have also approached banks complaining that their PPI provider is forcing them to stop banks’ services and shift to PPI platform for the money transfer service.

If a customer remits money through a bank’s BC agent he has to pay a fee of 1-1.5%, which is clearly conveyed to him. But in case of a PPI agent, the fee often ranges from 3-10% depending on the urgency to transfer the money. Also, the customer does not get a receipt in the latter case except some vague message that there will be a charge. The PPI agent, it is accused, also does not pay service tax and pockets the fee collected in cash.

Bankers said that while their BC agents register customers in a standardised manner, PPI agents only create a notional wallet to route the money transfer. “If you check the balances in the PPI customer wallet used for domestic money transfer, it is mostly nil. Password of most PPI wallets is 123456 increasing the risk of misappropriation of customers’ money,” said a banker.

Banks, in their letter to IBA, have suggested that services like domestic money transfer should only be conducted by their BC agents or telecommunication companies and not by PPIs.

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