The Reserve Bank of India (RBI) has taken a significant step to regulate cross-border payment platforms, bringing them under its direct oversight and introducing comprehensive rules to govern their operations. The move, detailed in a circular issued on October 31, aims to ensure the smooth and secure facilitation of cross-border transactions related to the import and export of goods and services in an online mode. Here’s a closer look at what the RBI’s new norms entail and what this means for payment aggregators.
Bringing Cross-Border Payment Platforms Under RBI’s Watchful Eye The RBI’s circular makes it clear that all entities involved in processing cross-border transactions will be placed under its direct regulation. These entities will be categorized under the “Payment Aggregator-Cross Border” (PA-CB) class. This decision is in response to the growing importance of cross-border payments and the need for tighter regulatory control.
Compliance with Regulatory Framework The circular directs relevant stakeholders, including authorized dealer (AD) banks, payment aggregators (PAs), and PAs-CB, to adhere to specific rules and regulations established under the Payment and Settlement Systems Act, 2007, and the Foreign Exchange Management Act (FEMA), 1999.
Authorisation from RBI All “non-bank” entities processing cross-border payments are required to apply for authorization from the RBI by April 30, 2024. These licenses will cover three categories: import-only, export-only, and both import and export. Startups offering cross-border payment services are permitted to continue offering these services until further communication is received from the RBI regarding their pending applications.
Minimum Net-Worth Requirements The RBI has set minimum net-worth requirements for entities seeking cross-border payment licenses. As a prerequisite, startups and other non-banks already offering such services must register with the Financial Intelligence Unit-India (FIU-IND). At the time of submitting their application, they should also meet a minimum net-worth threshold of INR 15 Crores. By March 2026, these platforms will need to have a minimum net worth of INR 25 Crores to maintain their authorization.
Compliance and Due Diligence The RBI’s guidelines stipulate that import-only PA-CBs must conduct due diligence on buyers if the value of goods or services imported per unit is over INR 2,50,000. Payments for imports can be made using any payment instrument provided by authorized payment systems in India, except for small prepaid payment instruments (PPIs).
Warning on Non-Compliance Entities failing to comply with the net-worth requirements are expected to cease offering cross-border payment services by July 31, 2024.
The Challenges Faced by Payment Aggregators While the RBI introduced the payment aggregator framework in March 2020, the process of obtaining licenses to acquire merchants and deploy digital payment solutions has proved challenging for many payment aggregators. Several applications, including those from prominent companies like Paytm and LivQuik, remain pending. The stringent rules and complex application procedures have been major roadblocks for payment solutions providers.
Growth and Opportunities in Cross-Border Payments Despite these regulatory challenges, cross-border payments are experiencing substantial growth. According to the Global Payments Report, global cross-border payment transaction flows increased by 13% in 2022. This growth has been driven by initiatives such as immediate cross-border payments (IXB) and the unified payments interface (UPI). The global cross-border payments market is projected to reach a size of $238.9 billion by 2027.
