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Does Google Pay need the RBI’s approval to operate in India?

The Delhi High Court on Wednesday asked the Reserve Bank of India how Google Pay was operating in India without its approval, PTI reported. The court was hearing a petition that claimed Google Pay had violated the Payments and Settlements Act as it did not figure in the RBI’s list of authorised payment system operators released on March 29. The petition also raised privacy concerns, claiming that Google Pay “has un-monitored and unauthorised access” to personal information such as Aadhaar and PAN numbers, and details of people’s financial transactions. The court issued notices to the RBI and Google India and said it would next hear the case on April 29. Note that the order hasn’t been uploaded yet on the Delhi High Court website

In response to the High Court notice, a Google spokesperson said Google Pay “operates as a technology service provider to its partner banks, to allow for payments through the UPI infrastructure, and is not part of payment processing or settlement”, the Economic Times reported.

Does Google Pay need the RBI’s approval?

(Nikhil adds)

The reason Google Pay is able to operate in India is that it has the approval of the National Payments Corporation of India (NPCI), which runs UPI and approves and monitors all payment services in India. It is on the NPCI’s list of approved third-party apps for UPI transactions and has tie-ups with HDFC Bank, ICICI Bank and Federal Bank.

If you look at the Payments and Settlements Act, 2007, it says:

4. (1) No person, other than the Reserve Bank, shall commence or operate a payment system except under and in accordance with an authorisation issuedby the Reserve Bank under the provisions of this Act:

Provided that nothing contained in this section shall apply to—
a) the continued operation of an existing payment system on commencement of this Act for a period not exceeding six months from such commencement,unless within such period, the operator of such payment system obtains an authorisation under this Act or the application for authorisation made under section 7 of this Act is refused by the Reserve Bank;

(b) any person acting as the duly appointed agent of another person to whom the payment is due;

(c) a company accepting payments either from its holding company or any of its subsidiary companies or from any other company which is also a subsidiary of the same holding company;(d) any other person whom the Reserve Bank may, after considering the interests of monetary policy or efficient operation of payment systems, the size of any payment system or for any other reason, by notification, exempt from the provisions of this section.

In effect, Google Pay isn’t a payment systems provider: it is an authorised vendor for the acquiring banks (to whom the payment is due) which are authorised payments systems provider. To give a telecom analogy, if you go back 10 years, Bharti Airtel was the telecom licensee, and One97 Communications was the vendor, which was providing mobile Value Added Services. Banks are like telecom operators: they’re the payment service providers, and the 47 apps are the vendors authorised to provide payment services by the banks. Just like VAS companies didn’t need a license to operate, neither do the apps like Google Pay.

On April 4, ET reported that Google Pay had taken the pole position on the UPI platform in terms of value of transactions it had processed in March. It said Google Pay clocked transactions worth Rs 43,000 crore to Rs 45,000 crore that month, while PhonePe and Paytm recorded Rs 31,000 crore to Rs 32,000 crore each. Paytm continued to lead in terms of the number of transactions, but its lead was narrow.

Google Pay’s tie-up with Pine Labs

On March 28, we reported that Google Pay and Pine Labs had tied up to give Google Pay access to 330,000 point-of-sale (POS) terminals in 3,000 towns in India. These payments will be made through UPI at POS counters, using the Google Pay user’s phone number, which can be authenticated by the user and processed via the app.

A week before that, Google Pay was testing UPI-based transactions with unspecified POS providers to onboard retail merchants. It was running small-scale pilots with retail stores and planned to roll out over the next few months. Last August, Google Pay partnered with POS machine makers Pine Labs and BillDesk to make Google Pay available in more physical stores. It also offered users an in-app process for applying for loans from partner banks.

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