Proposed Guidelines for Payment Aggregators by RBI
GS-3 Mains : Economy
Revision Notes
Question : Discuss the significance of Payment Aggregators (PAs) in India’s digital payment ecosystem. How do they contribute to enhancing convenience and security in online transactions?
Context
- RBI released consultation papers for stricter regulations on Payment Aggregators (PAs) handling offline transactions.
- Aims to strengthen the overall payment ecosystem safety.
- Comments/feedback welcome till May 31, 2024.
About Payment Aggregators (PAs)
- Third-party service enabling online payments for both customers and businesses.
- Facilitate various payment methods (debit/credit cards, UPI, e-wallets etc.).
- Existing guidelines cover online activities (e-commerce etc.).
How PAs Function
- Integration: Merchants integrate PA systems into their platform using APIs.
- Payment Processing: Securely processes transactions using chosen methods.
- Funds Settlement: Transfers funds (minus fees) from customer to merchant accounts.
- Reporting & Analytics: Provides tools for transaction tracking, reports, and data analysis.
Significance of PAs
- Convenience: Simplifies checkout process for merchants by accepting multiple payments through one integration.
- Security: Employs robust security measures to protect sensitive payment information.
- Scalability: Allows merchants to easily scale payment processing as their business grows.
New Norms by RBI
- Authorization for Non-bank PAs:
- Banks offering PA services as part of banking don’t need separate RBI authorization.
- Non-banking entities providing offline PA services (at Point of Sale – PoS) must inform RBI within 60 days to seek authorization.
- Existing operations can continue during application review.
- Existing online PAs (authorized or pending) need approval for offline PA activity from DPSS and RBI within 60 days.
- Eligibility for Application:
- Non-banking entities providing offline PA services require a minimum net worth of ₹15 crore, increasing to ₹25 crore by March 31, 2028.
Categorisation of Merchants:
- Small Merchants: Physical merchants with annual turnover below ₹5 lakh and not registered under GST.
- Medium Merchants: Physical/online merchants with annual turnover below ₹40 lakh and not registered under GST.
- Require contact point verification by PAs.
- PAs must physically collect information to verify firm existence and bank accounts.
Data Security:
- Effective from August 1, 2025, entities (except card issuers/networks) cannot store data for offline payments. Existing data must be purged.
- Limited data storage allowed for transaction tracking and reconciliation (last 4 card digits & issuer name).
- Card networks also responsible for compliance.
Significance of the Guidelines
- Ensure onboarded merchants don’t collect/settle funds for unoffered services.
- Strengthen KYC norms by expanding scope and adding nuances.
- Achieve regulatory synergy for PA activities and operations.
- Promote data collection and storage standard convergence.
- Strengthen the overall payment ecosystem against potential issues.