RBI’s recent guidelines for regulating payment aggregators in offline venues

The Reserve Bank of India (RBI) has issued two consultation papers requesting stricter supervision of payment aggregators that conduct face-to-face transactions. It also aims to improve the ecosystem’s safety.

What is a payment aggregator?

  • A payment aggregator is a payment solution or platform provider who brings together various payment modes such as cards, UPI, net-banking, wallets, and alternate credit products on a single platform by collaborating with various processing entities such as acquiring banks, direct banks (in the case of net banking), and issuers of wallets and alt credit. 

What are the norms about?

  • Extension to Offline Transactions: The existing requirements for payment aggregators apply to their activity on e-commerce and internet platforms. The most recent draft suggests expanding similar laws to offline venues, such as proximity or in-person transactions.
  • Convergence on Standards: The proposed guidelines seek to establish convergence on data collecting and storage standards for online and offline transactions handled by payment aggregators. 
  • Elaborate Guidelines: The suggested regulations are precise and comprehensive, drawing on lessons learnt from situations like as the Paytm Payments Bank debacle.
  • Strengthening the Ecosystem: The RBI appears to be aiming to protect the payment aggregator ecosystem from opacity while also guaranteeing compliance with regulatory norms.
  • sanctions for Noncompliance: The Financial Intelligence Unit (FIU-IND) levied sanctions on Paytm Payments Bank for participating in illicit operations and failing to comply with regulatory regulations, signalling severe implications for noncompliance with the proposed norms. 

Is registration with the RBI becoming mandatory?  

  • The major focus of these guidelines is on non-bank PAs, namely offline extensions.
  • PA Based on Bank: Banks that provide physical PA services as part of their usual banking relationship would not require extra RBI authorization. They are only expected to follow the amended guidelines for three months after they are released.
  • PA Without Banking: Non-banking businesses that provide PA services at the point of sale (PoS), or offline, must notify the RBI within 60 days (after the circular’s issuance) of their intention to seek authorization.

Does it mention provisions for sustainability?

  • Minimum net worth is intended to secure the viability of non-banking entities: While the proposed requirements are primarily concerned with regulatory compliance and financial stability, the need for a minimum net worth is intended to protect the viability of non-banking firms who provide proximity/face-to-face transaction services. This is because companies with a stronger financial foundation are better positioned to withstand economic shocks and uncertainties, supporting long-term sustainability.
  • Risk-Based Payments: Payment aggregators must distribute risk-based payments to merchants while concentrating on sustainability. This includes determining the risk associated with each merchant and modifying payment conditions accordingly. 

What about the KYC requirements?

  • Extended Scope of KYC: The proposed laws seek to broaden the scope of Know Your Customer (KYC) obligations for merchants onboarding through payment aggregators. While KYC is currently necessary, the laws aim to make the standards more sophisticated.
  • Document Verification for Medium businesses: Medium businesses with a higher yearly turnover criterion must provide extra documentation. Payment aggregators are obliged to check one formal document for each proprietor, beneficial owner, or attorney holder, as well as the specified business.
  • Ongoing Compliance Monitoring: Payment aggregators must guarantee that transactions conducted by their merchants are consistent with their company profiles. This includes continual surveillance to guarantee KYC compliance and company activity. 

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