The authors shared key learnings from our experience with the payment aggregator and gateway guidelines (PA/PG guidelines) issued by the Reserve Bank of India (RBI) on 17 March 2020, in our previous column. Following industry representations, the RBI has issued some clarifications regarding the guidelines, which have now been formalised through a circular issued on 31 March 2021 (RBI clarifications). This column explores the regulatory guidance provided under the RBI clarifications.
The application form to be submitted by payment aggregators (PAs) to the RBI seeking authorisation under the PA/PG guidelines requires the disclosure of the entity’s “chief executive”, or CEO. Given that private companies are not mandatorily required to appoint a CEO under the Companies Act, 2013, it would be interesting to observe what alternate arrangements and designations an applicant may create to meet the above-mentioned requirement. Some applicants may consider appointing a CEO in view of the professional management directive.
PAs are required to be professionally managed by persons meeting the fit and proper criteria. Although the RBI has not defined standards comprising the qualification and experience of directors or top executives, PAs may consider proactively hiring seasoned professionals on the board, and the timing of onboarding such professionals will be crucial from an application standpoint.
The PA/PG guidelines prescribed a one-time reporting by banks in paragraph 3.6 – to be submitted to the RBI by 15 April 2021. However, paragraph 3.6 pertaining to “separation of business” does not specifically call for any reporting requirement. While some banks did provide confirmation on behalf of marketplace applicants regarding segregation, it will be interesting to see what purpose this confirmation will serve for the RBI.
Storage of card data
The RBI clarifications reiterate that neither PAs nor the merchants onboarded by them can store customer card credentials within their database or servers, and the RBI has extended the timeline for ensuring compliance with these norms until 31 December 2021, allowing players time to crystallise their partnerships with card networks and issuing banks, and to implement infrastructural changes. In our earlier column, the authors mentioned that tokenisation could be a probable solution for storing card data. Under the RBI clarifications, tokenisation, in compliance with extant norms prescribed by the RBI in this regard, has been recognised as a workable solution only in the context of “transaction tracking”, without defining the same.
Given that the initial attraction for the storage of card payments data catered to customer convenience, it will be interesting to see the kinds of solutions that market players will implement to use transaction tracking to their own, and customers’ benefit.
Escrows and settlement
Existing PAs will be required to transition their nodals to escrows and comply with the updated instructions prescribed under the PA/PG guidelines. A nodal account is a special internal bank account mandated by the RBI for intermediaries, connecting customers to sellers. An escrow account is a temporary vault of money held by a trusted third party on behalf of two transacting parties that are bound by a contract.
Banks will have to shut nodals if the entity has not applied for a PA/PG licence, or where the ₹150 million (US$2 million) net worth capital requirement has not been met by the 31 March deadline.
PAs may continue to operate their nodals beyond the 30 June 2021 deadline if they have applied for authorisation. While PAs need to maintain an escrow upon authorisation, they may migrate to an escrow mechanism from an earlier date in consultation with their bankers.
Unlike the Intermediaries Circular of 2009, the PA/PG guidelines do not adopt a “one size fits all” approach in respect of settlement timelines. The timeline for disbursement of funds to the merchant will vary, depending upon the agreement between the PA and the merchant, giving them some flexibility to negotiate. This, coupled with the ability to have an interest-bearing escrow account subject to conditions, is a welcome opportunity for PA entities.
The RBI clarifications have cleared the air on key areas of concern for PA applicants to align their business models with the PA/PG guidelines, allowing for faster transaction timelines and convenience in not carrying out the entire know-your-customer process, in case merchants have already verified customers.
Anu Tiwari and Rohan banerjee are partners at Cyril Amarchand Mangaldas. Anindita Bhowmik, a partner, Ritu Sajnani, a senior associate, and Janak Panicker and Aditya Sarkar, associates, also contributed to this article
Cyril Amarchand Mangaldas
Peninsula Chambers, Peninsula Corporate Park
Lower Parel, Mumbai 400 013, India
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