RBI Proposes Enhanced Regulation for Offline Payment Aggregators

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The Reserve Bank of India (RBI) has recently proposed comprehensive guidelines to regulate payment aggregators (PAs) operating in offline spaces. These recommendations aim to enhance safety, compliance, and transparency in proximity or face-to-face transactions.

Background:

In June 2022, the RBI announced its intention to improve the regulation of offline PAs. The RBI has now released two consultation papers: The first paper focuses on the activities of offline PAs. The second paper aims to strengthen safety measures by expanding instructions related to Know Your Customer (KYC), due diligence for onboarded merchants, and operations in Escrow accounts. Stakeholders are invited to provide feedback by May 31.

Scope of Regulations:

Payment aggregators facilitate transactions between customers and merchants, relieving merchants from creating their own payment integration systems. Existing guidelines cover PAs operating in e-commerce and online platforms. The proposed draft guidelines extend these regulations to offline spaces, including proximity or face-to-face transactions. The RBI emphasizes the need for synergy in regulation across both online and offline PAs, ensuring consistent standards for data collection and storage.

Lessons from Past Incidents:

The RBI’s move comes after the Paytm Payments Bank (PPBL) crisis, which highlighted irregularities in KYC adherence. PPBL faced penalties for engaging in illegal activities, including facilitating online gambling. The proposed norms aim to prevent opacity and strengthen the ecosystem against such risks.

Compulsory Registration:

Non-bank PAs, especially those operating offline, will be subject to the new regulations. Banks providing physical PA services within their normal banking relationships won’t need separate authorization. However, they must comply with revised instructions within three months of issuance.

Overall, the RBI’s recommendations seek to create a robust regulatory framework for offline payment aggregators, ensuring transparency, security, and adherence to best practices.