‘Full regulation by RBI will require payment gateways, aggregators to be incorporated in India’

If the Reserve Bank of India opts for full and direct regulation of Payment Gateways and Payment Aggregators then these entities will have to be a company incorporated in India, with a minimum networth of Rs 100 crore, and deal with only those merchants who have a physical presence in the country.

According to RBI's Discussion Paper on Guidelines for Payment Gateways and Payment Aggregators, if the central bank chooses to go in for full and direct regulation, Payment Gateways and Payment Aggregators have to be authorised under the Payment and Settlement Systems Act, 2007 (PSSA).

The entities will be given one financial year (from date of issue of guidelines) to comply with the entry point norms and other technology, security, storage, etc, norms issued in this regard. Their promoters will need to satisfy the fit and proper criteria prescribed by RBI.

Entities not able to comply with the net-worth requirement within the stipulated time frame need not apply for authorisation, but will have to wind up payment aggregation business within one year of issuance of guidelines. Non-bank Payment Aggregators and Payment Gateways will require authorisation from RBI under PSSA.

Payment Gateways and Payment Aggregators refer to entities who: provide technology infrastructure to route and/ or facilitate processing of an online payment transaction; facilitate e-commerce sites and merchants to accept various payment instruments from customers for completion of their payment obligations to the merchants; and facilitate merchants to connect with acquirers.

Under full and direct regulation, e-commerce marketplaces acting as Payment Gateways and Payment Aggregators to other merchants will have to stop the activity within three months of the issue of guidelines. If they desire to pursue this activity, it should be separated from marketplace business and a separate entity should comply with the regulations.

Banks acting as Payment Gateways and Payment Aggregators have to obtain authorisation/ approval under PSSA along with a ‘No Objection Certificate’ from the respective regulatory department of RBI.

The entity has to appoint nodal officers responsible for regulatory and customer grievance handling functions. Details of the nodal officer should be prominently displayed on their website. The entities could be subjected to both on-site and off-site monitoring.

On on-boarding merchants, the RBI said the entities should ensure compliance with Know Your Customer/ Anti Money Laundering requirements, while onboarding merchants. They have to undertake background and antecedent checks of merchants to ensure that they do not have any malafide intention to dupe customers, do not sell fake/ counterfeit/ prohibited products, etc.

The merchant’s website should clearly indicate the terms and conditions of the service and time-line for processing returns and refunds.

The RBI said the contract signed with the merchant by the payment aggregator should clearly indicate that the merchant cannot act as a sub-aggregator and should route transactions pertaining only to his/ her own business.