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New rules for payment aggregators: Why it matters, what it means for you

RBI has proposed that non-banks offering PoS must notify the regulator of their intent to seek authorization within 60 days, and then submit their application by 31 May 2025, for approval to continue

credit card, debit card, card, payment, credit growth

Sunainaa Chadha NEW DELHI

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Big changes are coming to how you pay at stores. The Reserve Bank of India (RBI) is setting new rules for companies that handle point-of-sale (POS) payments. These POS companies let you easily swipe your card or phone at a store instead of using cash. The RBI wants to make sure these companies operate fairly and securely.

After releasing guidelines for online payment aggregators like Razorpay and Cashfree, RBI on Tuesday issued draft rules to regulate point-of-sale payment service providers (PA-P). Companies like Innoviti Payments, Pine Labs and MSwipe will be brought under regulatory cover now.

Here's the breakdown:
Companies that handle POS payments will need a special permit from the RBI by next year (May 2025). This ensures they meet specific regulatory standards. In case they fail to get authorisation, they will have to cease these services, as per the draft rules.

Those entities which are providing services now need to have a minimum net worth of Rs 15 crore while applying to the RBI for authorisation. They should have a minimum net worth of Rs 25 crore by March 2028, according to draft norms.

RBI wants to tighten security measures to prevent fraud and hacking attempts during POS transactions: PAs must become members of the Financial Intelligence Unit under the finance ministry to report any suspicious transactions. All these guidelines are applicable equally to PA-P as well as online payment aggregators (PA-O).

RBI wants to ensure all POS companies follow the same rules, creating a level playing field.

The RBI wants to keep your money safe and make sure POS payments are a reliable option for everyone.

What Existing Companies Need to Do:

Existing companies offering in-store card payments (PA-Ps) need to follow new guidelines within three months of the final rules being announced. These guidelines cover areas like how they manage customer complaints, how they choose businesses to work with (merchant onboarding), and how they prevent fraud.

Net Worth Requirements:
Existing PA-Ps need to have a minimum company value (net worth) of at least Rs 15 crore right now.
By March 2028, all PA-Ps (existing and new) need to have a minimum company value of Rs 25 crore.

What New Companies Need to Do:
New companies wanting to offer in-store card payments (PA-Ps) also need a minimum company value of Rs 15 crore to apply for RBI approval.
Within 3 years of getting approval, they need to increase their company value to Rs 25 crore and maintain it from then on.

What Happens if Companies Don't Comply?

Existing PA-Ps that can't meet the net worth requirements or don't apply for approval by the deadline (around July 2025) will have to stop offering in-store card payment services.
Banks will also close accounts used by non-compliant PA-Ps by October 2025 unless they show proof of applying for RBI approval.

Why is this Happening?
The Indian digital payments sector is booming, and the RBI wants to ensure its smooth and secure functioning. These new regulations aim to:

Protect consumers from fraudulent activities.
Foster trust and confidence in digital payment methods.
Promote healthy competition within the POS payment service provider space.

What is in it for you? 
As a consumer, you might not see immediate changes. However, these regulations could lead to:
Enhanced security features during POS transactions.

Classifying Merchants:

The RBI wants to categorize businesses that accept digital payments (merchants) into two groups: small and medium.
This simplifies things for payment companies because they'll have different requirements for dealing with each group.
Small Merchants:

These are physical stores with a very low annual turnover (less than Rs 5 lakh).
Payment companies might have less stringent verification procedures for these small businesses.
Medium Merchants:

These are physical stores or online businesses with a higher annual turnover (between Rs 5 lakh and Rs 40 lakh).
Payment companies might need to do more thorough checks on these businesses compared to small merchants.

Topics : RBI

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First Published: Apr 17 2024 | 2:56 PM IST

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