The 2019 RBI discussion paper, proposed a common regulatory framework for PAs and PGs without making any distinction in their roles vis-à-vis handling consumer funds.
By Shehnaz Ahmed
RBI has issued guidelines for bringing payment aggregators (PAs) under direct supervision. PAs (Bill Desk, CCAvenue, etc.) facilitate online payments. Extending RBI’s regulatory oversight is a welcome move. However, there are a few loose ends.
The 2019 RBI discussion paper, proposed a common regulatory framework for PAs and PGs without making any distinction in their roles vis-à-vis handling consumer funds. Contrary to these, the final guidelines correctly distinguish a PG that merely provides technological infrastructure without any access to consumer funds, from a PA that actually handles consumer funds. Accordingly, only PAs are mandated to comply with the regulatory requirements outlined in the guidelines. However, as a measure of good practice, PGs are recommended to adopt the baseline technology measures in the guidelines. This distinction is in line with the regulatory approach in other jurisdictions. As highlighted in the Vidhi Centre for Legal Policy’s submission to RBI on the discussion paper, jurisdictions like Singapore and EU also exempt technical service providers which do not handle consumer funds from the purview of payments regulation. Further, unlike the discussion paper, that recommended a net-worth requirement of Rs 100 crore for PAs and PGs, a requirement that was heavily criticised by the industry, the final guidelines mandate PAs to have a net-worth of Rs 15 crore initially, and then Rs 25 crore by 2023. Further, a new provision (not present in the discussion paper) has been incorporated in the guidelines, which require refunds to be made to the original method of payment, unless an alternate mode has been agreed to by the consumer. This may be to prohibit the existing practice of many e-commerce platforms to credit refunds automatically to a consumer’s e-wallet created on the platform and not to the account from where the amount was originally debited. This practice creates difficulties for a consumer since the amount in the e-comm wallet can only be used for transactions on that particular platform and nowhere else.
RBI has addressed some of the concerns in the final guidelines. However, some issues may require further clarity. One, guidelines require PGs to maintain an escrow account with only one SCB. It may be worthwhile to reconsider this provision and enable more than one account, in light of Yes Bank debacle. Due to the restrictions imposed by RBI on Yes Bank’s account, the nodal accounts maintained by payment intermediaries with Yes Bank could not be operated resulting in disruption of services by fintech companies, especially related to paying out merchants. Two, in addition to undertaking know your customer for onboarding merchants, PAs have been mandated to undertake background and antecedent check of the merchants. This is to ensure that such merchants do not have any mala fide intention of duping consumers or selling counterfeit or prohibited products. Mandating PAs to address the regulator’s concern regarding the quality of the merchant and its goods appears to be an onerous burden for a PA and arguably such issues do not fall within the regulatory ambit of RBI. Third, the PA is mandated to maintain customer grievance redressal mechanisms in line with RBI’s prescriptions on turnaround time for resolution of failed transactions. Unlike the regulatory prescriptions for prepaid payment instrument issuers, there is no requirement for PAs to report about the receipt of complaints and action taken status thereon to the RBI. Four, the impact of the Yes Bank moratorium on the fintech sector clearly indicates the relevance of business continuity plans. Accordingly, it may have been useful for guidelines to expressly refer to preparation of plans by PAs.
Given the crucial role that PAs play in the digital payments ecosystem, the RBI guidelines will be instrumental in ensuring that only serious players with robust governance framework remain in the market.