Regulations for offline payment aggregators to be at par with online peers

Kiran Malik

29 May, 2024

The Reserve Bank of India (RBI) has recently announced that regulations for offline payment aggregators will be brought at par with online peers. This move is aimed at ensuring the safety and security of customers who use offline payment methods. The RBI has recognized the need for a level playing field between offline and online payment aggregators to ensure that customers are protected regardless of the payment method they use.

What are Payment Aggregators?

Payment Aggregators are intermediaries that facilitate payments between merchants and customers. They enable the merchant to accept payments through various modes such as credit/debit cards, net banking, e-wallets, UPI, etc. Payment aggregators charge a fee for their services, which is typically a percentage of the transaction value.

Regulatory Framework for Payment Aggregators

The RBI has put in place a regulatory framework for payment aggregators to ensure the safety and security of customer transactions. Online payment aggregators are subject to stringent regulations, including mandatory registration with the RBI, adherence to KYC norms, transaction limits, and reporting requirements. Offline payment aggregators, however, have not been subject to the same level of regulation.

Challenges faced by Offline Payment Aggregators

Offline payment aggregators have faced challenges in complying with the regulatory framework applicable to online payment aggregators. One of the key challenges is the lack of standardized processes and procedures for offline payments. The absence of a common platform for offline payments has made it difficult to implement KYC norms and transaction limits.

RBI’s move to bring parity between Online and Offline Payment Aggregators

• The Reserve Bank of India (RBI) plans to regulate offline payment aggregators to the same level as their online counterparts.
• The move aims to provide a level playing field for offline payment aggregators and enable them to compete with their online peers.
• The regulatory framework will promote financial inclusion by making it easier for individuals without access to the internet to make digital payments.
• The move will also increase merchants’ revenue potential by providing access to a wider customer base.
• The regulatory framework will ensure the safety and security of customer transactions and improve customer confidence in using digital payments.
• The move will improve transparency in the payment ecosystem, reduce the risk of fraud and misuse of customer data, and enhance the reporting requirements under the regulatory framework.
• The implementation of the regulatory framework may pose challenges such as compliance costs, lack of standardization, and the need for education and awareness programs.

Impact of the move on Payment Aggregators

• Increased competition: The move will create a more level playing field for offline payment aggregators, enabling them to compete more effectively with their online counterparts.
• More payment options: Merchants will have access to a wider range of payment options, which will make it easier for them to cater to customer preferences.
• Higher transaction volumes: With access to a wider customer base, merchants may be able to process higher transaction volumes, which can increase revenue potential.
• Improved trust and confidence: The regulatory framework will ensure the safety and security of customer transactions, improving customer trust and confidence in using digital payments.
• Compliance costs: The move may result in increased compliance costs for payment aggregators, which could impact profitability.
• Operational changes: Payment aggregators may need to make operational changes to comply with the regulatory framework, which may require significant investment in technology and infrastructure.
• Educational efforts: There may be a need for education and awareness campaigns to inform merchants and customers about the regulatory framework and the benefits of using offline payment methods.

Benefits

• Level playing field: The move will provide a level playing field for offline payment aggregators to compete with online payment aggregators.
• A wider range of payment options: Merchants will have access to a wider range of payment options, which will make it easier for them to cater to customer preferences.
• Financial inclusion: The move will promote financial inclusion by making it easier for individuals without access to the internet to make digital payments.
• Increased customer base: Merchants will have access to a wider customer base, which will increase their revenue potential.
• Improved security: The regulatory framework will ensure the safety and security of customer transactions, which will improve customer confidence in using digital payments.
• Improved transparency: The reporting requirements under the regulatory framework will improve transparency in the payment ecosystem and reduce the risk of fraud and misuse of customer data

Challenges in implementing the regulatory framework:

The challenges in implementing the regulatory framework for offline payment aggregators are:

• Developing new systems and processes: Offline payment aggregators may need to develop new systems and processes to comply with the regulatory framework. This may require significant investment in technology and infrastructure.
• Lack of standardization: The absence of a common platform for offline payments may make it difficult to implement KYC norms and transaction limits. There may be a need for standardization of processes and procedures across different payment methods.
• Compliance costs: Implementing the regulatory framework may result in increased compliance costs for offline payment aggregators. This may impact their profitability and ability to compete with online payment aggregators.
• Limited reach: Offline payment aggregators may have a limited reach compared to online payment aggregators. This may make it difficult for them to comply with the transaction volume requirements set by the regulatory framework.
• Education and awareness: There may be a need to educate merchants and customers about the regulatory framework and the benefits of using offline payment methods. This may require significant efforts in creating awareness campaigns and training programs.

Conclusion

The RBI’s move to bring parity between offline and online payment aggregators is a positive step towards ensuring the safety and security of customer transactions. The move will promote the growth of offline payments and provide a level playing field for offline payment aggregators. However, it is important to ensure that the regulatory framework is designed to meet the specific needs of offline payment aggregators and does not impose unnecessary compliance costs.

Also Read:
What is Payment Aggregator?
How do Payment Aggregator Platforms Work?
Extension of timeline for non-bank Payment Aggregators: RBI Notification