The Reserve Bank of India has reduced the capital requirements for payment aggregators to Rs 15 crore at the time of application for the licence from Rs 100 crore it had proposed earlier.
In the final regulatory note released on March 17, the central bank said that applicants need to have Rs 15 crore of net worth, which needs to be increased to Rs 25 crore within three years of operations.
"Existing non-bank entities offering payment aggregation (PA) services shall apply for authorisation on or before June 30, 2021," RBI said.
This has been a major relief for the payments industry, industry insiders pointed out that Rs 100 crore for the business was too big and could force many smaller payment companies to move out of this aggregation business. Also the time given is enough for players to prepare well and apply.
Further the regulator also pointed out that pure-play payment gateway companies would be separated as an entity and would be identified as technology service providers for banks and non-banks. The guidelines have been aimed at payment aggregators only. These are players who integrate with ecommerce companies and connect them with banks. They receive payments on behalf of these companies and transfer the money to their accounts.
"Good to see that entities handling funds of customers are only being proposed to be regulated unlike the original draft. Also, the net worth requirements are reduced and adequate time provided of one year to comply," said Naveen Surya, Chairman, Fintech Convergence Council, an industry body for fintech companies.
Besides the standard procedures laid out by the RBI, PAs have also been asked to adhere to strict security guidelines, adhere to all KYC (Know Your Customer) and AML (Anti Money Laundering) rules. Further the guidelines have also mandated that PAs need to check their merchant customers are not involved in selling of prohibited or fake items.
"The capital requirements are not too high, most of these things were implemented by banks we work with anyway, these guidelines make it more transparent, one additional thing here is that merchants will not be able to store card details of customers," said Harshil Mathur, Chief Executive Officer, Razorpay.
The central bank has also asked PAs to set up designated nodal offices to deal with customer grievance. Another important development is that the RBI has prohibited PAs from allowing online transactions to be done with ATM pin as the second factor of authentication, which few payment gateway companies were offering as a service.
Entities like Billdesk, CCAvenue, Firstdata, Techprocess were the original players in this space. Then came the wave of startups who transformed the gateway business altogether. Players like Razorpay, Cashfree, Paytm Payment Gateway and others started offering payment services to ecommerce companies. Given the largescale adoption of digital payments and emergence of so many players, the RBI expressed interest in regulating the space.
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