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.

 

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