RBI’S DRAFT RULES FOR PAYMENT AGGREGATORS

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In News

• RBI wants to improve rules for offline payment aggregators (PAs) handling face-to-face transactions. They released two papers for public feedback.
• First Paper: Focuses on how offline PAs work.
• Second Paper: Proposes stricter rules for safety. It includes better checks for knowing customers (KYC), checking merchants, and managing money in Escrow accounts.
• Feedback: RBI wants people to share their thoughts by May 31.

ALL ABOUT PAYMENT AGGREGATORS: https://www.iasgyan.in/daily-current-affairs/payment-aggregator#:~:text=A%20payment%20aggregator%20in%20India,require%20unique%20authorization%20from%20RBI.

What exactly are the norms about?

• Extension of Regulations: The RBI wants to extend its rules for payment aggregators (PAs) from online to offline transactions, like face-to-face payments.
• Reason for Extension: RBI sees similarities in how PAs operate online and offline. It wants to regulate both in a similar way to improve standards for data collection and storage.
• Learning from PPBL Crisis: The RBI is also learning from past mistakes, like the Paytm Payments Bank (PPBL) crisis. PPBL faced issues with KYC rules and illegal activities, like online gambling, which led to a penalty. The RBI wants to prevent such problems in the future by strengthening regulations for PAs.

Is registration with the RBI being made compulsory?

Compulsory Registration:

• Non-bank payment aggregators (PAs) and their offline extensions must register with RBI.
• Banks providing physical PA services do not need separate authorization but must follow new instructions within three months.
• Non-banking entities offering PA services at the point of sale (PoS) must inform RBI within 60 days of the circular to seek authorization.

Continued Operations:

• Entities can continue operations while seeking authorization.
• Non-banking entities providing PA services online must seek approval for existing offline PA activity within 60 days of the directive.

Compliance Requirements:

• PoS entities must adhere to guidelines on merchant on-boarding, customer grievance redressal, dispute management, technology recommendations, security, fraud prevention, and risk management within 3 months.
• Continued adherence to 2020 guidelines will be viewed positively for fresh registration.

Provisions for sustainability

Minimum Net Worth Requirement:

• Non-banking entities offering face-to-face transaction services must have a minimum net worth of ₹15 crore when applying.
• This requirement will increase to ₹25 crore by March 31, 2028.
• New applicants must meet the ₹25 crore net worth requirement by the end of the third financial year from when authorization is granted.

Closure of Operations:

• Existing offline operators unable to comply with the approval-seeking timeframe must cease operations by July 31, 2025.
• Banks failing to provide evidence of their application for authorization will be directed to close all accounts by the end of October the following year.

KYC Requirements

Enhanced KYC Requirements:

• Regulations aim to prevent merchants from collecting and settling funds for services not offered on their platforms.
• KYC are already mandatory and provisions are being made more nuanced.

Classification of Merchants:

• Small merchants have an annual turnover of less than ₹5 lakh and are not GST registered.
• Medium merchants have a turnover of less than ₹40 lakhs and are not GST registered.

Contact Point Verification:

• PAs must physically verify the existence of small and medium merchants.
• Verification includes checking official documents of the proprietor, beneficial owner, or attorney holder, and of the business.

Transaction Compliance:

• PAs must ensure transactions align with the merchant's business profile.
• Risk-based payment limits should be assigned to merchants, with higher due diligence for certain transaction patterns.

Card Data

Prohibition on Card Data Storage:

• Draft regulations prohibit entities, except card issuers and networks, from storing data for face-to-face payments from August 1, 2025.
• Entities must purge any previously stored data.

Limited Data Storage:

• Entities can store limited data, including the last four digits of the card number and the issuer's name.
• This limited data storage is allowed for tracking and reconciling transactions.

ALL ABOUT PAYMENT AGGREGATORS: https://www.iasgyan.in/daily-current-affairs/payment-aggregator#:~:text=A%20payment%20aggregator%20in%20India,require%20unique%20authorization%20from%20RBI.