Asheeta Regidi & Reeju Datta
Payment Aggregators have long played a characteristic role in the payments ecosystem as intermediaries. The new RBI norms on Payment Aggregators and Payment Gateways (‘PA Guidelines’) represent a major policy change. Key changes introduce flexibility and control which were unavailable previously, thereby creating scope for innovation and new services by PAs, and thus new advantages for merchants. Changes of this nature are always welcome, and the recent zero MDR rule, which makes innovation and value added services crucial for the survival of payment service providers, makes these particularly timely for PAs.
Increased customisation and new service avenues
Governed formerly by the Intermediary Directions, a PA’s functions included only collection and settlement of payments via nodal accounts, with ancillary services like managing refunds and chargebacks. While these continue, the PA Guidelines introduce crucial changes:
i) Enabling API based transaction banking services:
This change legalises one form of fintech provided API based banking services, which so far are unregulated and contractually governed. The credits and debits possible to the account holding payment collections (now an escrow account) are restricted. The PA Guidelines now allow new credits like pre-funding with the merchants/PA’s funds, and new debits to accounts specified by the merchants. This allows the PAs to innovate and offer services involving instruction-based payouts of pre-funded amounts, beyond collecting and settling payment transactions alone.
API based transaction banking services in the form of large-scale payment disbursals are one example. Users can include aggregators (wage payouts to gig workers, vendor settlements) companies (employee salary payments, expense reimbursements) and e-commerce entities (bulk refunds for cash on delivery orders). This also allows new services to the finance industry, like lenders (loan disbursals) or insurance providers (insurance claim settlements). Another example is using PAs for cashbacks, promotional activities, etc.
ii) On-boarding foreign merchants:
The PA Guidelines also allow servicing foreign merchants. The initial Discussion Paper’s proposed prohibition against PAs servicing merchants with no physical presence in India, is absent from the final norms, indicating this. This is welcome given the complexities of OPGSP operations (Online Payment Gateway Service Providers or OPGSP norms governing export/import transactions require separate import/export Nostro collect accounts, services by AD Category-I banks only, etc.).
There are however ambiguities. One is how the OPGSP norms apply here (discussed further below). Another is previously, PAs couldn’t on-board merchants without an Indian bank account. Does this restriction apply to foreign merchants on-boarded by PAs now?
iii) Customised settlement timelines:
Some merchants (vehicle/appliance/furniture rentals) benefit if security deposits paid for via PAs don’t reach them by default. For one, such deposits are routinely refunded, and second, this allows them not to record the deposits on their books, except occasionally when the security deposit is retained.
The formerly mandated 2/3-day settlement period for PAs is now replaced with timelines determined contractually by the merchants (up to the refund period). Thus, customised settlement timelines are enabled. A second advantage for PAs is the use of longer settlement timelines for riskier merchants (say to protect against chargebacks).
Further steps needed
The RBI also needs to address some concerns with the norms. One is the move to a single escrow account. The lakhs of transactions handled daily by a PA makes it technologically unviable to process these with just one account. While a positive step for the freedom escrow accounts entail (the shared ownership), a single account significantly hinders the efficiency and reliability of a PA’s services.
Second is the blurring of the line between domestic (Intermediary Directions) and cross-border (OPGSP norms) services of the PAs. The PA Guidelines provide that they govern the ‘domestic leg’ of export/import transactions. One ambiguity is that there is no direct reference to the OPGSP norms. The reference could well be to certain payments processed by PAs as domestic ones, but which have an export/import element to them (eg.: a ticket purchased on an Indian ticketing platform like Makemytrip by someone outside India).
Assuming instead that the reference is to typical OPGSP transactions, it is unclear how the two norms will inter-play. For instance, OPGSP norms prescribe separate settlement timelines (2/7 days), credits/debits (no pre-funding/instruction-based debits), and specific accounts separate from domestic services (a PA will need more than one account thereby).
Industry stakeholders have in fact approached the RBI for redressal. Nevertheless, innovation-friendly measures are crucial for progress today, making these norms very welcome for the industry.Asheeta Regidi is Head, Fintech Policy, Cashfree; authored with inputs from Reeju Datta, Co-Founder, Cashfree.