RBI Draft Rules for Payment Aggregators: 26 April 2024

Background:

• Two consultation papers were released earlier this month by the Reserve Bank of India (RBI) in an effort to improve regulation of offline Payment Aggregators (PAs).
• The first focuses on the operations of offline PAs.
• The second suggests enhancing the safety of the ecosystem by extending the guidelines for Know Your Customer (KYC), onboarding merchant due diligence, and escrow account operations.

RBI Draft Rules:

• The existing guidelines cover their activities in e-commerce sites and other online avenues.
• According to the latest draft norms, these rules would also apply to offline settings where there would need to be in-person interactions.
• RBI wants to improve the coordination of rules governing PA operations and activities.

Registration with RBI:

• Banks providing physical PA services as part of their normal banking relationship would not require any separate authorisation from the RBI.
• It is expected that they will adhere to the updated guidelines within three months following their issuance.
• PAs, providing online / offline services, would have to inform RBI within 60 days (after the circular is issued), about their intent to seek authorisation. 

Sustainability provisions:

• The RBI proposes that non-banking entities currently providing face-to-face transaction services have a minimum net worth of ₹15 crore when they apply. 
• This would be extended to ₹25 crore by March 31, 2028. 
• The requirements are the same for new applicants.
• Existing offline operators unable to comply with the approval-seeking timeframe have to wind up their operations by July 31, 2025. 

KYC Requirements:

• The regulations aim to ensure that onboarded merchants do not collect and settle funds for services not offered on their platforms. 
• The RBI’s proposed instructions categorize merchants into small and medium merchants.

• Small merchants: would constitute physical merchants with an annual business turnover of less than ₹5 lakh who are not registered under the GST regime
• Medium merchants: defined as physical or online merchants with annual business turnover of less than ₹40 lakhs who are not registered under the GST, would also have to undergo contact point verification. 

Data Privacy:

• No entity, other than the card issuer and/or card network, can store data for face-to-face payments from August 1, 2025, and direct them to remove data stored previously. 
• Entities would be allowed to store limited data, the last four digits of the card number and the issuer’s name.   
• The responsibility for compliance  would also be on card networks.         

Why in news?

This article is based on a recent publication of The Hindu, Text and Context section.