How much regulation can intermediaries bear?

By Shilpa Mankar Ahluwalia, Shardul Amarchand Mangaldas & Co
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Payment gateways (PGs) and payment aggregators (PAs) are payment intermediaries (PIs) that facilitate payments online between a customer and a merchant. The Reserve Bank of India (RBI) has, so far, adopted a light-touch approach to regulating such intermediaries. The RBI issued a set of Intermediary Guidelines in 2009, which required payment aggregators to maintain at a bank a nodal account from which debits, credits and settlement cycles were monitored and controlled. PIs had to meet no direct licensing, capital adequacy, reporting or other requirements.

Given the tremendous growth in digital payments, the RBI has said on a number of occasions that it intended to reconsider the regulatory framework for PGs and PAs. On 17 September 2019, the RBI released a discussion paper setting out: (1) three possible approaches to the regulation of PIs; and (2) a draft regulatory framework on the assumption that it decides to adopt a full licensing regime.

The need to increase scope of regulation

Shilpa Mankar Ahluwalia
Shardul Amarchand Mangaldas & Co

The RBI has pointed out that PIs perform a critical role in enabling online payments. They handle not only customer funds but also sensitive customer data. However, customers have limited direct access to PIs to resolve complaints. These factors prompted a re-evaluation of the existing regulatory framework.

The RBI has articulated three approaches to regulation of PIs: (1) status quo: continue with the existing approach, which appears to have worked well in the past decade; (2) limited regulation: PIs will be required to comply with minimum net worth requirements, guidelines concerning the settlement of funds, standards for technology and security platforms and escrow account requirements, but will not be licensed immediately, the licensing regime to be introduced in a phased manner; and (3) full licensing: PIs will require a licence from the RBI to operate under the Payment & Settlement Systems Act 2007 with existing players being given a period of 12 months to comply with the framework.

What full licensing regime will entail

The framework will apply to all online payment transactions except transactions where payments are made against delivery. It focuses on:

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Shilpa Mankar Ahluwalia is a partner at Shardul Amarchand Mangaldas & Co. and leads the firm’s Fintech practice.


Shardul Amarchand Mangaldas & Co
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New Delhi – 110 020
Executive Chairman: Shardul Shroff
Managing Partners: Pallavi Shroff &
Akshay Chudasama

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