The RBI, in September 2019, released a discussion paper on the Guidelines recognizing the crucial role of intermediaries like payment gateways and payment aggregators in electronic or online payment methods.
These RBI guidelines also discuss the role of online payment methods as a bridge between merchants and customers in the transaction flow in online payments.
These guidelines specifically differentiated between those intermediaries that provide technology infrastructure to facilitate online payment processing without handling of funds and those that facilitate merchants to receive payments from customers where such entities may handle funds.
Few regulatory approaches were outlined in order to regulate payment aggregators and payment gateways in India. Three categories of the regulatory approaches are:
(1) Continuing with the existing instructions, which is, the indirect regulation of the RBI through the Payment and Settlement Systems Act, 2007 or the “PSSA” and the Directions for opening and operation of accounts and settlement of payments for electronic payment transactions involving intermediaries, 2009.
(2) Limited regulation of such entities based on specific aspects such as minimum net-worth, merchant on-boarding, timelines for settlement of funds, maintenance of escrow account, security and submission of returns t0-o RBI, licensing or registering in a phased manner, over a period of time.
(3) Full and direct regulatory supervision of RBI related to the requirement of authorization, capital, governance, anti-money laundering (AML), know your customer (KYC), consumer grievance redressal and dispute management, security, fraud, risk management, and submission of reports to RBI.
The Guidelines is to come into effect from April 1, 2020. Excluding the provisions with respect to obtaining an authorization from the RBI and maintenance of minimum net-worth requirements, Separate timelines are prescribed for them.
Definition of Payment Aggregators And Payment Gateways
The Guidelines create a distinction between ‘payment aggregators’ and ‘payment gateways’.
The differentiating criteria are the entity’s involvement in the handling of the funds.
| Payment Gateways | Payment Aggregators |
| Payment Gateways are limited to entities which provide technology infrastructure to route and facilitate the processing of an online payment transaction without any involvement in handling of funds | Payment Aggregators are wide in approach and extend to all entities which facilitate e-commerce sites and merchants to accept various payment instruments from the customers for completion of their payment obligations. It does not need the merchants to create a separate payment integration system of their own. |
What is the role of an escrow account while the transactions are in the process?
An Escrow Account is an account where funds are held in trust whilst two or more parties complete a transaction. A trusted third party such as Escrow.com secures the funds in a trust account. The funds are disbursed to the merchant after they have fulfilled the existing escrow agreement.
RBI Registration Of Payment Aggregators
Payment Aggregators will require RBI Registration as an ‘authorized payment system’ under PSSA which has to be completed before June 30, 2021.
These payment aggregators will be allowed to continue their operations till they receive communications from RBI regarding their application for registration.
The guidelines also provide, any entity seeking to make an application for authorization must be a company incorporated under Companies Act, 2013, ensuring that the business activity of operating as a payment aggregator is covered under the scope of its memorandum of association (MOA).
E-commerce marketplaces which provide payment aggregator services are mandated to discontinue this activity before June 30, 2021. If such entities desire to pursue payment aggregator services, they can do so only through a separate business from the marketplace business and shall apply for authorization with the RBI on or before June 30, 2021, through the separate business.
Criteria for RBI Registration of Payment Aggregators
The Guidelines prescribe for a strict minimum net worth criteria. Non-compliance with such criteria will need the relevant entity to wind up its payment aggregation business.
The obligation of monitoring and reporting non-compliance with the criteria is bestowed upon banks maintaining escrow accounts of payment aggregation entities.
With regard to the guidelines:
- Payment aggregators existing as on March 17, 2020, are required to achieve a net worth of INR 15 crore by March 31, 2021, and a net worth of INR 25 crore by March 31, 2023.
- New payment aggregators need to have a minimum net worth of INR 15 crore at the time of application for authorization and a net worth of INR 25 crore by the end of the third financial year of grant of such authorization.
Guidelines to Payment Aggregators
These guidelines have been issued to regulate the activities of payment aggregators.
- The RBI has mandated payment aggregators to adopt the technology-related recommendations mentioned in the Guidelines.
- The domestic leg of import and export related payments facilitated by payment aggregators shall also be governed by these RBI Guidelines.
- These Guidelines do not regulate Cash on Delivery (COD) payments.
- All payment aggregators need to put in place an approved ‘board approved policy’ for merchant on-boarding. Such policy includes undertaking background and antecedent check of the merchants. This puts an onerous obligation of ensuring, that merchants on-boarded do not have the mala-fide intent to trick customers and that they do not sell fake or counterfeit products.
- Another important responsibility is placed on payment aggregators. Which is to check the Payment Card Industry-Data Security Standard (PCI-DSS) and Payment Application-Data Security Standard (PA-DSS) compliance of the infrastructure of each of the merchants on-boarded.
- Merchant sites have been mandated not to save customer card and such related data.
Redressal and Dispute Management
According to the guidelines the payment aggregators need to put a formal, publicly disclosed customer grievance redressal and dispute management framework.
Designate a nodal officer to handle the customer complaints or grievances and the escalation matrix. The details of the nodal officer is to displayed on the website of the payment aggregator prominently.
Payment Gateways
Payment gateways have been considered as ‘technology providers’ or ‘outsourcing partners’ of banks and non-banks, and have been advised to adopt the baseline technology-related recommendation provided in the Guidelines.
Bank payment gateways are further subject to RBI Guidelines on ‘Managing Risks and Code of Conduct in Outsourcing of Financial Services by banks
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