RBI releases Draft Directions to enhance regulation of Payment Aggregators

The Reserve Bank of India (RBI) has released certain draft directions in relation to the regulation of payment aggregators inviting public comments: (i) New draft circular on regulation of Payment Aggregators – Physical Point of Sale (PA-P) (Draft Circular); and (ii) Proposed amendments to the existing guidelines on regulation of Payment Aggregators (PAs) (Draft Amendment).

 

Draft Circular

 

The payments ecosystem in India includes (i) online PAs (PA-O), and (ii) PAs which facilitate face-to-face / proximity payment transactions (PA-P). The Payments Vision 2025 envisages direct regulation of PA-P, and an announcement to this effect was made in the Statement on Developmental and Regulatory Policies released by the RBI, dated September 30, 2022.

 

As part of the Draft Circular, the RBI has provided the following:

 

Requirement of Authorisation

 

• Banks provide physical PA services as part of their normal banking relationship, and hence, do not require separate authorisation from RBI for the purpose. They shall ensure compliance with these instructions within three months from the date of issue of the circular.

 

• Non-bank entities providing PA-P services as on the date of this circular, shall intimate to RBI within 60 days from the issuance of the circular about their intention to seek authorisation. They shall apply to the RBI for authorisation by May 31, 2025. They shall be allowed to continue their operations till they receive communication from the RBI regarding fate of their application.

 

• Non-bank PA-O – authorised as well as those whose application for authorisation is pending with the RBI – shall seek the approval of RBI within 60 calendar days from the date of the circular, about their existing PA-P activity, if they would want to continue it.

 

• The entities, currently carrying out the activity of physical PA services should ensure adherence to the existing guidelines on governance, merchant on-boarding, customer grievance redressal and dispute management framework, baseline technology recommendations, security, fraud prevention and risk management framework (as provided in the existing guidelines on regulation of payment aggregators vide circular dated March 17, 2020) within a period of three months from the date of this circular. The entity shall ensure compliance with these guidelines on an ongoing basis thereafter. The continued adherence to these guidelines shall be considered while processing the application for authorisation / approval.

 

• In future, an authorised non-bank PA-O (or PA-P) which wants to commence physical (or online) PA activity (as the case may be), shall seek approval from DPSS, RBI, CO prior to commencement of such business.

 

Net-worth Criterion

 

The entities providing PA-P services shall be required to satisfy minimum networth criteria prescribed by the RBI.

 

The Draft Circular may accessed be clicking on this link.

 

Draft Amendment

 

Keeping in view the importance of Payment Aggregators (PAs) in the payment ecosystem, the circulars issued by the RBI in respect of PAs and Payment Gateways (PGs) provide for, inter-alia, direct regulation and authorisation of PAs facilitating payments at online Point of Sale by the RBI. As part of the Draft Amendment, the RBI has published certain clarifications / modifications in respect of extant PA framework. These instructions shall be applicable with effect from one month from the date of issue of the circular (unless otherwise specified) to all PAs, irrespective of status of the application submitted to the RBI for seeking authorisation.

 

The key amendments proposed as part of the Draft Amendment include, inter alia, the following:

 

Definitions

 

• The definition of PA shall stand revised as follows:

 

Entities which on-board merchants and facilitate aggregation of payments made by customers to such merchants, for purchase of goods and services, using one or more payment channels, in online or physical Point of Sale payment modes through a merchant’s interface (physical or virtual), and subsequently settle the collected funds to such merchants.

Online PAs (PA – O): PAs which facilitate e-commerce transactions in non-Delivery versus Payment mode.

PA – physical Point-of-Sale (PA – P): PAs which facilitate face-to-face / proximity payment for Delivery vs Payment1 transactions.

• Merchant: Entities which sell / provide goods and services purchased by the customer. They include a marketplace also.

 

Small merchants: Physical merchants (those undertaking only proximity / face-to-face transactions) with business turnover less than the threshold limit of Rs.5 lakh per annum and not registered under Goods and Services Tax.

Medium merchants: Merchants (physical / online), excluding small merchants, with business turnover less than the threshold limit of Rs.40 lakh per annum. Such merchants are not registered under Goods and Services Tax.

 

• Marketplace: An electronic commerce entity which provides an information technology platform on a digital or electronic network to facilitate transactions between buyers and sellers.

 

Escrow Accounts

 

• The escrow account opened by the PA in accordance with the existing PA guidelines can be used for both PA-O and PA-P activities.

 

• Funds in respect of Delivery versus Payment (DvP) transactions, which were hitherto not covered under the scope of RBI circulars dated March 17, 2020 and March 31, 2021, shall be routed through the escrow account(s).

 

• Cash-on-delivery transactions are outside the scope of the RBI circulars on PAs. Accordingly, such transactions shall not be routed through the escrow accounts.

 

• Paragraph 8.9.1.2 (b) of RBI circular dated March 17, 2020 that permits debit to escrow account for ‘payment to any other account on specific directions from the merchant’, stands deleted.

 

KYC and Due Diligence

 

• Payment Aggregators shall undertake due diligence of merchants onboarded by them in accordance with Customer Due Diligence (CDD) prescribed in Master Directions on Know Your Customer (MD-KYC), 2016, as amended from time to time, unless provided otherwise. These instructions shall be applicable three months from the date of issue of the circular.

 

• The PA may undertake due diligence of merchants in accordance with instruction provided below:

 

• For small merchants, the PA shall undertake Contact Point Verification (CPV) of the business establishment. PAs shall also duly verify the bank account in which funds of such merchants are settled.

 

• For medium merchants, PAs shall carry out CPV. PAs shall also obtain and verify one Officially Valid Document (OVD) of the proprietor / beneficial owner / person holding attorney and verify one OVD of the business.

 

• For undertaking the CDD through Video based Customer Identification Process (V-CIP), assisted V-CIP shall be permissible when PAs take help of an agent facilitating the process only at the merchant end. PAs shall maintain the details of the agent assisting the merchant, where services of such agents are employed.

 

• PAs shall ensure that marketplaces onboarded by them do not collect and settle funds for services not offered through their platform.

 

• All non-bank PAs shall register themselves with the Financial Intelligence Unit-India (FIU-IND) and provide necessary information as desired by FIU – IND.

 

• Existing PAs (both authorised PAs, as well as PAs whose application is pending with RBI as on the date of this circular) shall ensure that for all existing merchants (both online and physical), the due diligence process, prescribed shall be completed within prescribed timelines.

 

For more details, kindly refer to the Draft Amendment published by the RBI, available by clicking on this link.