rbilogoThe Reserve Bank of India, after attempting to increase the reach of the banking ecosystem by allowing PCOs and grocery shops to offer banking services, has now framed new directions for all banks and some e-commerce and m-commerce providers under Section 18 of  the Payment and Settlement Systems Act, 2007. The rules are aimed at increasing accountability and reducing delays in transferring money between the participants of the ecosystem – consumers, providers of e-commerce and m-commerce applications and services and the merchants who accept payment through online and mobile media.

Download: RBI’s Guidelines For Service Providers (pdf)

Which Providers Are Affected?

Those e-commerce an m-commerce providers that create a float and hold onto amounts deposited by the users for unknown periods of time before the next transaction are the ones targeted by RBI. The reason is that these funds can be used for overnight investments by the company.

Those that perform real-time payments, and whose process for digital payments flow like a pipe directly from the consumer’s bank account through their application or service and to the merchants without delays are excluded from the guidelines. Here’s a list of Indian digital payment companies.

The guidelines say, “all entities that collect monies received from customers for payment to merchants using any electronic/online payment mode, for goods and services availed by them and subsequently facilitate the transfer of these monies to the merchants in final settlement of the obligations of the paying customers.”

Pre-paid instrument providers and companies that create an independent account for the user and subsequently allow the user to pay bills and make transactions for e-commerce and m-commerce needs to which the user subscribes are those which will be affected by this rule. These could include: Atom Technologies, mChek, ItzCash Card, Obopay, NGPay by JiGraahak Mobility Solutions, Oxigen, etc.

ItzCash Card, for example, offers four pre-paid cards that can be used to purchase tickets, book a hotel room, pay for insurance, settle bills etc off 5000 merchants in 1800 towns and cities. This follows RBI’s definition of companies with processes wherein “the payments made by customers (for settlement of e-commerce/m-commerce/bill payment transactions), are credited to the accounts of these intermediaries, before the funds are transferred to the accounts of the merchants in final settlement of the obligations of the paying customers.”

RBI has stated that direct e-commerce and m-commerce providers such as online travel sites Yatra.com, Makemytrip.com, IRCTC etc, online shopping sites Futurebazaar.com, Indiatimes Shopping etc, cinema booking sites PVRcinemas.com, utility and G2C services such as electricity and water bill payments, online music stores will not be touched by this rule. Payment gateway providers such as CC Avenues, PaisaPay (Ebay), DirecPay (TimesOfMoney) or Transecute could be affected, however. The RBI directions say, “Transactions which are akin to a Delivery versus Payment (DvP) arrangement will continue to be facilitated.”

Responsibility Of Banks

RBI has informed banks to treat any account created and maintained for such transactions by such providers, called “intermediaries”, as internal accounts. It has handed over the charge of these accounts to the banks and ordered them to convert all existing accounts set up by intermediaries for users within three months – by March 2010.

Consider what could happen if the aggregator/payment service provider goes bankrupt? The customer’s funds would be lost, and hence RBI’s decision to transfer the responsbility to banks and make them in charge of these floating accounts is a good security measure.

RBI has also determined that only commissions, which have been fixed at the pre-determined rates and frequency, are payable to the intermediaries in order.

Settle Online & Mobile Transactions Within 2 Days

To ensure e-commerce and m-commerce payments are done in a timely fashion, RBI has ordered that all payments to merchants, except those that require a transfer of funds to nodal banks, should be done with 2 days of informing the user of the completion of the transaction. Those to nodal banks should be completed within 3 days. This will also come into effect in March.

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