Mumbai: ICICI Bank Ltd has blocked transactions on payments app PhonePe in at least the second such instance of a commercial bank trying to protect its turf against non-bank mobile wallet and payment companies. PhonePe is a unified payments interface (UPI) app which works on the ecosystem created by the National Payments Corp. of India (NPCI).

On Saturday, PhonePe’s co-founder and chief executive officer Sameer Nigam took to microblogging site Twitter to allege that ICICI was blocking transactions since Friday. In a series of tweets, he said that ICICI was blocking “Definitely on purpose! Over 10x txns failed. Bank is not reversing the block."

“Some banks including us have raised security related concerns at appropriate forums about the access to UPI data to a non-banking application," said an ICICI spokesperson in an emailed response. “Further, this entity is following restrictive practices allowing users to make payments with only its UPI handle, which is in contravention to the UPI guidelines of interoperability and choice that empowers a customer to choose any app to make payments through UPI. Pending resolution of these concerns, we have temporarily declined to undertake UPI transactions originating from this entity."

“We are waiting for an actual confirmation from ICICI through either NPCI directly or through Yes Bank, but we have no official intimation from any party," Nigam told Mint. Yes Bank is a UPI partner of PhonePe.

Infosys co-founder Nandan Nilekani, who currently serves as an advisor to the NPCI and has overseen the development of the Unified Payments Interface (UPI), declined comment.

This is the second instance of an incumbent getting nervous over a disruptor. On 4 January, CNBC-TV18 reported that State Bank of India has blocked net banking transactions with e-wallet companies, although it allowed customers to top their mobile wallets with debit and credit cards. At that time, SBI chairman Arundhati Bhattacharya had said that service was blocked because of security concerns.

“Wallets don’t have proper risk mitigation measures in place and also don’t ensure that one mobile number can use only one wallet. We have seen multiple cases of customers opening multiple wallets on a single mobile number and transferring the money from the bank account to these wallets and then transferring this to non-KYC complaint accounts," said a senior SBI official.

Since the government decided to ban Rs500 and Rs1,000 currency notes on 8 November, it has tried to promote cashless transactions in a big way from asking banks to waiving off debit card transaction fees to offering discounts for using digital payments to buy fuel.

ALSO READ | Demonetisation is a major assault on poor: Economist Pranab Bardhan

The biggest beneficiaries of this move have been digital payment firms and wallet operators. Paytm, for instance, witnessed a jump from 115 million users to 150 million users in the first week after demonetisation, according to stats shared by the company.

It is clear that banks aren’t enthusiastic about the increasing reach of such non-back payment firms.

“There is a certain degree of apprehension about KYC (know your customer) standards of digital payment app of non-banks. Currently banks and wallets are subjected to two different regulatory and security standards. While banks follow the two factor authentication, wallets have a single pin access," said a senior official of one of the top three private sector banks on condition of anonymity.

“The wallet architecture is currently not interoperable which means customers using bank wallets cannot pay to those using wallets of other digital payment companies. So, why should banks allow these companies to have a free ride by transferring funds from their account to the wallet," this person added.

The rise of these firms has also come at the cost of UPI, whose adoption was lukewarm at best during the initial few weeks after demonetisation. At the time, all the big banks were aggressively promoting their own net banking apps and in-house digital wallets instead of promoting UPI.

ALSO READ | What’s ailing UPI and how to fix it

That was because banks didn’t have enough incentive to promote UPI and disrupt their own e-payment services, said experts. Simply put, banks don’t get fees or commissions from UPI transactions originate from the UPI platform, unlike debit and credit cards, and net banking.

To address some of the initial concerns and boost adoption of UPI, the NPCI in late December launched Bharat Interface for Money (BHIM).

Now, with the focus slowly shifting to UPI (where a user can link a bank account to any app—even that of a different bank, or of a third party), the competition has just got tougher for banks as smartphone users switch to these services instead of cash and cards.

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