From UPSC perspective, the following things are important :
Prelims level: Payment aggregators
Mains level: What exactly are the norms about?
Why in the news?
The Reserve Bank of India (RBI) has floated two consultation papers seeking enhanced regulation of payment aggregators carrying out face-to-face transactions. It also seeks to strengthen the ecosystem’s safety.
What is Payment Aggregators?
- A payment aggregator is a payment solution or a platform provider that aggregates various payment modes such cards, UPI, net-banking, wallets and alternate credit products by partnering with various processing entities such as acquiring banks, direct banks (in case of net banking) and issuers of wallets and alt credit products on to a single platform.
What exactly are the norms about?
- Extension to Offline Transactions: The existing guidelines for payment aggregators cover their activities in e-commerce and online platforms. The latest draft proposes extending these regulations to offline spaces, including proximity or face-to-face transactions.
- Convergence on Standards: The proposed norms aim to achieve convergence on standards of data collection and storage across online and offline transactions handled by payment aggregators.
- Elaborate Guidelines: The proposed norms are detailed and comprehensive, reflecting lessons learned from incidents such as the Paytm Payments Bank crisis.
- Strengthening Ecosystem: RBI’s objective seems to be strengthening the payment aggregator ecosystem against opacity and ensuring compliance with regulatory standards.
- Penalties for Non-Compliance: The Financial Intelligence Unit (FIU-IND) imposed penalties on Paytm Payments Bank for engaging in illegal activities and failing to adhere to regulatory requirements, indicating strict consequences for non-compliance with the proposed norms.
Is registration with the RBI being made compulsory?
The primary focus of this guidlines is on non-bank PAs and within them, the offline extensions.
- PA based on Bank: Banks providing physical PA services as part of their normal banking relationship would not require any separate authorisation from the RBI. They are only expected to comply with the revised instructions within three months after they are issued.
- PA without Banking: Non-banking entities providing PA services at the point of sale (PoS), that is, offline, would have to inform RBI within 60 days (after the circular is issued), about their intent to seek authorisation.
Does it talk about provisions for sustainability?
- Minimum net worth aims to ensure the sustainability of non-banking entities: While the proposed norms primarily focus on regulatory compliance and financial stability, the requirement for a minimum net worth aims to ensure the sustainability of non-banking entities providing proximity/face-to-face transaction services. This is because entities with a stronger financial base are better positioned to weather economic challenges and uncertainties, thus promoting sustainability in the long run.
- Risk-Based Payments: Payment aggregators are required to assign risk-based payments to merchants, focusing on sustainability. This involves assessing the risk associated with each merchant and adjusting payment terms accordingly.
What about KYC requirements?
- Extended Scope of KYC: The proposed regulations aim to extend the scope of Know Your Customer (KYC) requirements for merchants onboarded by payment aggregators. While KYC is already mandatory, the regulations seek to make the provisions more nuanced.
- Document Verification for Medium Merchants: Medium merchants, with a higher annual turnover threshold, must undergo additional document verification. Payment aggregators are expected to verify one official document each of the proprietor, beneficial owner or attorney holder, and the stated business.
- Ongoing Compliance Monitoring: Payment aggregators must ensure that transactions undertaken by their merchants are in line with their business profiles. This involves ongoing monitoring to ensure compliance with KYC requirements and business activities.
Conclusion:
The proposed norms aim to achieve convergence on standards of data collection and storage across both online and offline transactions handled by payment aggregators. This helps in streamlining regulatory requirements and ensuring consistency in data management practices.
Mains PYQ
Q How can the Digital India program help farmers to improve farm productivity and income? What step has the government taken in this regard? (UPSC IAS/2015)
With Inputs from:
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