RBI releases two new draft directions for regulating Payment Aggregators

On April 16, 2024, the Reserve Bank of India (“RBI”) released two new draft directions for the regulation of payment aggregators under the Payment and Settlement Systems Act, 2007, with the aim of strengthening the payment ecosystem.

The salient points of the draft directions issued by the RBI are as follows:

Draft Directions on Regulation of Payment Aggregators Physical Point of Sale (“New Directions”)

The New Directions have been released by the RBI for the purpose of regulating physical Point of Sale Payment Aggregators (termed “PA-Ps”) which are engaged in handling face to face payments or proximity transactions (in the offline space).

The New Directions require banks (providing PA-P services as part of their normal banking services) to ensure compliance within a timeline of 3 months from the date of their enforcement. As regards non-bank entities (providing PA-P services), they are required to intimate the RBI within 60 days from the issuance of instant directions about their intention to seek authorization from the RBI (which is to be acquired by May 31, 2025). The RBI has also introduced new net worth criterion requirements, which must be met by non-bank PA-Ps to continue their current operations as well as by any entity seeking to carry our operations as non-bank PA-P.

In the case of non-compliance with the aforementioned requirements, existing non-bank PA-Ps will be required to wind down their operations.

Amendments on existing Payment Aggregator Directions

The RBI has proposed amendments to existing Guidelines on Regulation of Payment Aggregator and Payment Gateways (“Amendment Directions”) in light of the growing digital transactions and the roles that PAs play in this space. The Amendment Directions introduce several new requirements in relation to KYC procedures, due diligence of merchants, operations in Escrow accounts, etc as well as timelines for the implementation of such requirements. Notably, the Amendment Directions require that all non-bank PAs must register themselves with the Financial Intelligence Unit-India (“FIU-IND”) and provide necessary information as desired by FIU – IND.