Payment Aggregator License:
- A Payments Aggregator, or PA, license, allows companies to provide payment services for merchants (online businesses or e-commerce firms) by accepting payment instruments from customers.
- As part of the process, PAs pool the funds received from customers and transfer them to merchants after a certain time period.
- To protect the welfare of citizens and businesses, the RBI released PA guidelines in March 2020 wherein it was highlighted that the payment gateways need a license to acquire merchants and provide them with digital payment acceptance solutions.
- The main eligibility to comply with RBI guidelines and receive the “In-Principle authorization to act as a payment aggregator,” a fintech firm must have had a net worth of Rs 15 crore by March 2021, Rs 25 crore by March 2023, and Rs 25 crore at all times thereafter.
Why is the license significant for fintech firms?
- Industry experts believe that one of the significant reasons from a consumer point of view is the trust factor, as PAs are directly monitored by the RBI.
- “RBI has clearly stated and has advised consumers (e-commerce companies) to deal with existing PAs who have been granted in-principle authorisation or whose application is under process. So this clearly means loss of business if a company doesn’t receive the nod”.
- Another significant reason for bringing in the license application is to curb PAs from getting into KYC (Know Your Customer)-related issues and undertaking any dealings with cryptocurrency exchanges and Chinese gaming apps.
- “Companies like Cashfree and Zaakpay came under the RBI’s scanner for KYC issues and other crypto deals…This license is also significant for the regulator to put checks at the very beginning”.
- While the license approval process is stringent, multiple industry experts believe that the PA license will bring more transparency, standardization and trust within India’s fintech ecosystem.
How did the payment aggregator licensing regime start?
- Earlier payment gateway companies were working in partnership with banks and were not regulated. Since digital payments have been growing exponentially over the last decade, RBI decided that it was time to bring these entities handling large sums of customer money under its direct regulation.
Why did RBI bring payment gateway companies under its regulation?
- Apart from the growth and importance of these entities, the idea is to monitor the companies that handle or move large volumes of money. By licensing these firms and bringing them under its direct control, the RBI can oversee any suspected money laundering activities and high-value suspicious transactions. It gives the RBI direct access to details on such transactions.
- The RBI and Enforcement Directorate have also had issues with payment gateway firms facilitating crypto and betting transactions. The regulator also had issues with several payment gateway companies that were not diligent with the KYC of merchants. While Payment Gateways worked with banks, the final responsibility was with the banks, which often said that they could not check the KYC of merchants done by Payment Gateways. Now with the PA license, the responsibility falls clearly on the PA firms.
