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Payment Aggregators UPSC NOTE

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  New Rules The Reserve Bank of India (RBI), following its announcement in June 2022 that it will seek better regulation of offline payment ...

 New Rules

  • The Reserve Bank of India (RBI), following its announcement in June 2022 that it will seek better regulation of offline payment aggregators (PAs) facilitating proximity or face-to-face transactions, has floated two consultation papers earlier this month. 

  • The first deals with activities of offline PAs, while the second proposes to strengthen the ecosystem’s safety by expanding instructions for Know Your Customer (KYC), due diligence of onboarded merchants and operations in Escrow accounts

 Payment Aggregators

  • Payment aggregators are entities that settle payments from customers to merchants — unburdening the latter from creating a payment integration system of their own. 

  • The existing guidelines cover their activities in e-commerce sites and other online avenues

  • The latest draft guidelines propose to extend these regulations to offline spaces, entailing proximity or face-to-face transactions. 

  • The RBI observed back in June 2022 that the nature of activities carried out by the PAs, both online and offline, is similar. 

 Payment Aggregators

  • It aspires to bring in “synergy in regulation covering activities and operations of PAs apart from convergence on standards of data collection and storage.”


Lessons from the Paytm Payments Bank crisis

  • The PPBL crisis was triggered by, among other things, major irregularities in the bank’s KYC adherence

Lessons from the Paytm Payments Bank crisis

  • The Financial Intelligence Unit (FIU-IND) had imposed a penalty of ₹5.49 crore having found that PPBL “engaged in a number of illegal acts, including organising and facilitating online gambling.” 

  • It added that the money generated from it was “routed and channelled through bank accounts maintained by these (illegal) entities” with the PPBL.

  • With the expansion of the scope of operations of PAs, the RBI appears to be strengthening the ecosystem against any opacity

Non banking PA’s

  • The primary focus of new rule is on non-bank PAs and within them, the offline extensions. 

  • Banks providing physical PA services would not require any separate authorisation from the RBI.

  • They are only expected to comply with the revised instructions within three months after they are issued.

  • Non-banking entities providing PA services at the point of sale (PoS), that is, offline, would have to inform the RBI within 60 days (after the circular is issued), about their intent to seek authorisation.

Non banking PA’s

  • The entities would, however, be allowed to continue their operations. 

  • As for non-banking entities providing PA services online — both those authorised and whose applications are pending — would be required to seek approval, about their existing offline PA activity, from the Department of Payment and Settlement Systems and the regulator within 60 days of the directions being mandated. 

  • This would also apply to any authorised non-banking entity aspiring to enter the online and/or offline PA space in the future

  • The RBI’s directions also stipulate that entities currently engaged in PoS activities must ensure they adhere to guidelines on merchant on-boarding, customer grievance redressal and dispute management, baseline technology recommendations, security, fraud prevention and risk management framework as per the previous framework within 3 months

  • For entities that would require fresh registration, the RBI has said continued adherence to existing guidelines framed in 2020 would be viewed positively while processing the applications.

KYC Requirements

  • The regulations aim to ensure that onboarded merchants do not collect and settle funds for services not offered on their platforms. 

  • While KYC is already mandatory, the regulations seek to make the provisions more nuanced.

  • The RBI’s proposed instructions categorise 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. 

KYC Requirements

  • The regulator proposes that the PAs undertake ‘contact point verification’, that is, collect information physically to establish the existence of the firm. 

  • They must also verify the bank accounts in which their funds are settled. 

  • 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.

  • The PA would be expected to establish their existence by verifying one official document each of the proprietor, beneficial owner or attorney holder, and of the stated business.

  • The PAs must ensure that transactions undertaken by their merchants are in line with their business profile

  • They must assign risk-based payment limits to the merchants. 

  • Based on their transaction pattern, the merchant could be migrated to a higher degree of due diligence.

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Learnerz IAS | Concept oriented UPSC Classes in Malayalam: Payment Aggregators UPSC NOTE
Payment Aggregators UPSC NOTE
Learnerz IAS | Concept oriented UPSC Classes in Malayalam
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