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The RBI will directly regulate all entities facilitating cross-border payment transactions for the import and export of goods and services. That the Indian digital payments ecosystem will get heavily regulated now – is a clear message that has been given by RBI, with issuance of Payment Aggregator-Cross Border (PA-CB) guidelines, to players like Amazon (Pay) India, Google India, Razorpay, Pine Labs, PayPal, Cash free, Paymate, etc. The RBI has moved away from a light-touch regulatory approach towards a full licensed regime for cross-border PAs. In the future UPI service providers like PhonePe and Google Pay might get regulated directly too.
All entities that facilitate cross-border payments for import and export of goods and services in online mode, i.e. ‘Payment Aggregator – Cross Border’ (“PA-CB”) have been brought under the direct regulation of RBI, through the circular ‘Regulation of Payment Aggregator – Cross Border’ (“Regulations”), issued on October 31, 2023. A PA (also known as a merchant aggregator) is a third-party service provider that allows merchants to accept payments from customers by integrating it into their websites or apps. It facilitates different types of payment transactions, including cash and cheques, online payments through multiple payment sources, or offline touchpoints. It allows merchants to accept bank transfers without setting up a bank-based merchant account. It means a merchant need not have a merchant account directly with the bank.
Payment gateways, which provide the technology infrastructure for online monetary transactions, have been facing challenges in obtaining payment aggregator licenses, with the RBI granting in-principal approvals but delaying final approvals for sometime now. Payment Aggregators play a crucial role in enabling e-commerce sites and merchants to accept various payment instruments from customers and fulfil their payment obligations without needing to create their own systems. They collect payments from customers, pool them, and transfer them to the merchants, streamlining the payment process.
Non-banks providing PA-CB services as on the date of circular should have a minimum net worth of ₹15 crore at the time of application for authorisation and a minimum net worth of ₹25 crore by March 31, 2026. If the per unit goods/ services imported exceeds ₹2.5 lakh, then the PA-CB concerned must undertake due diligence of the buyer also. Customer due diligence should be undertaken by the merchant (that is, directly onboarded Indian merchants, e-commerce marketplaces, or entities providing PA services), and proceeds from the Export Collection Account (ECA) shall be settled only in the account of such merchants.
PA-CB activities are classified into the following 3 categories: (a) export only PACB; (b) import only PA-CB; and (c) export and import PA-CB. All non-bank entities that propose to undertake PA-CB services, including the entities that currently provide PA-CB services, will require an authorisation from the RBI as a payment system operator (PSO) under the Payment & Settlement Systems Act, 2007. All entities that currently undertake PA-CB services are required to apply for such authorisation by April 30, 2024. Such PA-CB’s can continue these activities until RBI has made a decision on their application. However, authorised dealer category – I scheduled commercial banks (“AD Banks”) do not require separate approval for undertaking PA-CB activity from the RBI.
Non-bank payment aggregators (“PAs”) that are presently engaged in any PA-CB activities are required to intimate the RBI about their preference to continue with the PA-CB activities within 60 days from the date of the Regulations (i.e., October 31, 2023) prior to seeking approval for such activities from the RBI. Also, the Regulations clarify that PA-CBs authorised for a particular activity (for example, for imports transactions) will require a prior approval for undertaking an additional activity (for export transactions).
Companies that have received an in-principal nod from the regulator will also need to get explicit permission from RBI to offer cross-border payment services. While it may increase the compliance cost of payment aggregators, RBI’s new guidelines on PA CB (Payment Aggregator Cross Border) are a step in the right direction from a regulatory framework standpoint, in taking the cross-border payment agenda of the country forward.