The Reserve Bank of India (RBI) has said WhatsApp Pay, the messaging platform’s digital payment service, is yet to comply with its data localisation norms, the Times of India reported. RBI made the comments in an affidavit filed in the Supreme Court on Wednesday. The court had made the central bank a party to a writ petition filed by the Centre for Accountability and Systemic Change, an NGO, in January.

WhatsApp has been operating its WhatsApp Pay in beta mode for one million users since February 2018. In June 2018 WhatsApp said that though its payments feature was built on Facebook’s payments infrastructure, the parent company would not store any data pertaining to payments. But in July, Bloomberg reported that this had not allayed concerns about how WhatsApp would store user data. According to Bloomberg, the Ministry of Electronics and Information Technology (MEITY) asked WhatsApp and its partner banks to provide more details about the payments system. The ministry also asked the National Payments Corporation of India (NPCI) to check whether WhatsApp was fully compliant with its requirements, the report said.

WhatsApp’s updated privacy policy

In an update to its terms of service and privacy policy on payments last June, WhatsApp made several clarifications about the information it collects through its payments service. The company said that it has limited visibility on the Indian consumer’s banking details. It stated clearly that it does not have access to the user’s UPI PIN, which is used to authenticate transactions, as the PIN is encrypted by software provided by the National Payment Corporation of India (NPCI). It said it only collects the UPI PIN to enable payments.

With regard to data collection by Facebook, WhatsApp said it “works with service providers including Facebook” to send payment instructions, maintain transaction history, provide customer support, and “keep our services safe and secure.” It again clarified that Facebook has no access to the UPI PIN, as it is encrypted.

The localisation mandate for payments data: A timeline

April 6, 2018: The RBI mandated all payments system operators in India to ensure that data related to payment systems operated by them be stored in the country, and gave companies six months to comply. The RBI wanted data stored locally “in order to have unfettered access to all payment data for supervisory purposes”.

July 12: The Finance Ministry eased the RBI’s directive for foreign payment firms, saying that mirroring a copy of the data in India would be enough, instead of requiring storing the data only locally.
Payments companies breathed a sigh of relief, and assumed that the Finance Ministry’s directive stands, and that it would be okay to mirror user data in India. The companies were awaiting a circular from the central bank to this effect.
However, the RBI’s did not issue any such circular, which became a concern for global payment companies.

July 27: The long-awaited draft Data Protection Bill 2018 was submitted to the government; it added an another layer of confusion to the matter. The bill reportedly overrode all sectoral regulators and therefore all their directives. The bill mandated that all data fiduciaries store a copy of users’ personal data in India and worryingly, it also required mandatory storage of ‘critical personal data’ within India only. The bill, however, failed to state explicitly the definition of ‘critical data’.
September 6: RBI asked payment companies to send it fortnightly updates on the progress made on storage of payment system data in India.

October 15: The RBI’s circular on localisation of payments data came into effect.

February 2019: The Department for Promotion of Industry and Internal Trade released India’s Draft Ecommerce Policy, which included strategies for regulating access to data, mandating data storage requirements, and controlling cross-border data flows.

What the draft e-commerce policy says about data localisation

In February the Department for Promotion of Industry and Internal Trade released India’s Draft Ecommerce Policy, which addressed data localisation among many other issues. Here’s what it said:

“A business entity that collects or processes any sensitive data in India and stores it abroad, shall be required to adhere to the following conditions:

  • All such data stored abroad shall not be made available to other business entities outside India, for any purpose, even with the customer consent
  • All such data stored abroad shall not be made available to a third party, for any purpose, even if the customer consents to it
  • All such data stored abroad shall not be made available to a foreign government, without the prior permission of Indian authorities
  • A request from Indian authorities to have access to all such data stored abroad, shall be complied with immediately
  • Any violation of the conditions mentioned above shall face the prescribed consequences (to be formulated by the Government).”

“Restrictions on cross-border flows of data shall not apply to the following:

  • Data that is not collected in India
  • B2B data sent to India as part of a commercial contract between a business entity located outside India and an Indian business entity
  • Software and cloud computing services involving technology-related data flows, which have no personal or community implications
  • MNCs moving data across borders… internal to the company and its ecosystem, and does not contain data that has been generated by users in India from various sources, including e-commerce platforms, social media activities, search engines etc.”