RBI mandates offline payment aggregators to verify KYC for merchants
Mumbai, April 17, 2024
Payment aggregators will need to conduct Contact Point Verification and verify the bank account where funds of small merchants are settled
The Reserve Bank of India’s (RBI) draft regulation for payment aggregators (PAs) will enable the latter to manage risks on their platform with well-defined Know Your Customer (KYC) norms for merchants, said market participants.
In the draft guidelines published Tuesday, the banking regulator outlined KYC procedures for small and medium-sized merchants. It said, a PA will need to undertake Contact Point Verification (CPV) and duly verify the bank account in which the funds of small merchants are settled.
Physical merchants that are undertaking only proximity or face-to-face transactions with business turnover less than the threshold limit of Rs 5 lakh per annum and those not registered under Goods and Services Tax (GST) are defined as ‘small merchants’ as per the draft norms.
RBI has added that for ‘medium merchants’, PAs shall carry out the CPV. PAs shall also obtain and verify one Officially Valid Document (OVD) of the proprietor, beneficial owner or person holding attorney. They will be required to verify one OVD of the business.
It has defined medium merchants as those with business turnover less than the threshold limit of Rs 40 lakh per annum and those not registered under GST.
“We welcome these guidelines from the Payments Council of India (PCI) perspective. It gives a much-needed clarity in terms of handling all different kinds of merchants and on what specific KYC of merchants that needs to be done,” said Vishwas Patel, joint managing director, Infibeam Avenues and chairman, PCI.
Players have added that following crackdown on companies such as Paytm Payments Bank for alleged KYC violations, the regulator may be placing norms in place to eliminate existing risk in the market.
“If (KYC) was a problem with Paytm, others would also be following suit. There are the usual risks associated such as money laundering that may be required to be curbed which is why the draft norms are in place,” an executive of a payments fintech said on condition of anonymity.
The player added that the draft norms will bring in consolidation within the sector.
“Companies whose PA-PG (Payment Aggregator, Payment Gateway) applications have been returned, the chances of them getting them are low. It may lead to consolidation when these get out of the market,” the person said.
Such companies may look at acquiring other regulated firms or partnerships with them to continue their business, the executive added.
Single escrow account
The recent draft norms aimed at regulating non-bank physical point-of-sale payment aggregators (PA-P) will streamline collection and settlement for merchants.
Previously, only the online point-of-sale payment aggregators (PA-O) were regulated by the RBI. Those servicing offline merchants, for in-store transactions, were not under the regulator’s purview.
“What was happening is that the lines between online and offline were blurring,” Patel of PCI said. He explained that earlier the challenge for PAs was that the funds coming for online merchants would go into one escrow account, and funds coming for offline merchants would go into another escrow account, and so on.
“With the draft guidelines, it makes things easier, whether it is online or offline. It unifies everything and all will follow the same standards and rules. All single settlements are now possible through a single escrow account,” he added.
Essentially, the draft norms now allow escrow accounts opened by PAs to be utilised for both PA-O and PA-P activities. Funds with respect to the Delivery versus Payment (DvP) transactions, which were previously not covered under the RBI’s radar, can now be routed through escrow accounts.
Minimum net worth requirements
The regulator has proposed net worth norms for payment aggregators (PAs) which facilitate face-to-face or proximity payment transactions.
Those entities which are providing services now need to have a minimum net worth of Rs 15 crore while applying to RBI for authorisation. They should have a minimum net worth of Rs 28 crore by March 2028, according to draft norms.
New non-bank PA-Ps will be required to have a minimum net worth of Rs 15 crore at the time of application to the RBI for authorisation. They will be required to attain a minimum net worth of Rs 25 crore by the end of the third financial year of grant of authorisation and maintained at all times thereafter.
New draft norms
PAs to conduct KYC due diligence of small, medium merchants
Ensure merchant transactions in line with their business profile
Have risk-based payment limits for merchants
Due diligence aimed at eliminating risk in the market
[The Business Standard]
