The Reserve Bank of India should obtain self-certification from relevant e-commerce entities that comply with applicable regulations, Consumer Unity and Trust Society (CUTS) said in its submission to the central bank. CUTS also said that RBI should not ask the e-commerce companies to create a separate entity for conducting its payment aggregators’ (PA) and payment gateways (PG) business. The RBI had released a discussion paper on guidelines for payment aggregators and payment gateways in September.
The key recommendations have been summarised below:
Recommendation 1: Reconsider the regulatory approach for e-commerce marketplaces. Instead of asking market players to change their business architecture, RBI could ask them for self-certification of compliance with applicable regulations instead. RBI should not ask the e-commerce firms to create a separate entity for conducting payment aggregators/gateways business. It should instead ask companies to create a virtual information barrier between different departments to address concerns of conflict of interest.
Recommendation 2: Do not restrict PAs and PGs from dealing with merchants who do not have a physical presence in the country. Merchants are appropriately verified at the time of account opening and onboarding. Once on board, the regulator should treat all merchants equally, irrespective of their physical presence.
Recommendation 3: Adopt a risk-appropriate capital requirement, as the capital of minimum net worth of Rs 100 crore for PAs/PGs is a market barrier. This risk-based graded approach should be linked with value of gross outstanding transactions, or a similar indicator. RBI should not treat all kinds of PAs/PGs similarly, as the discussion paper has itself noted that these entities have different business models and offer divergent services. RBI should adopt a customised risk-based approach as this will reduce restrictions for companies to enter the market, compete, innovate, and improve their quality of services. This will also address concerns of risk, capital, and operations viability.
Recommendation 4: Increase the time frame to comply with the net worth requirement, as the one prescribed in the discussion paper, one year, is too short. RBI should consider the present economic scenario in the financial services industry and make a note that it would be difficult for entities with a net worth below Rs 100 crore to comply with the requirement within a year. The regulator should also provide clarity on what would happen to customer funds that are held by such entities.
Recommendation 5: Do not impose directions of KYC checks on PAs and PGs for merchants, as banks and financial institutions are already required to undertake such KYC checks. RBI has also asked the payment aggregators to undertake background and antecedent checks of merchants to ensure that merchants do not have any wrong intention of duping customers, do not fake sales, prohibits products, etc. Such requirements go beyond the scope of RBI’s mandate and run the risk of over-regulation. RBI should remove such directions as PAs and PGs may find it difficult to comply with such requirements and consider them onerous.
Recommendation 6: Design optimal mechanism to protect customer funds, as the suggested method of depositing funds in escrow with bank may not be optimal. Since banks themselves could be offering PA/PG services, prescription on their competitors to store funds with banks may distort competition.
Recommendation 7: Reconsider the requirement to have a recourse clause in case of non-delivery of goods and services to customers as it is a business decision for PGs and PAs.
Recommendation 8: Align customer grievance and dispute management framework with the RBI’s notification on Turn Around Time and the Ombudsman Scheme for Digital transactions 2019 compliance. The regulator should review this mechanism from time to time.
Recommendation 9: Reconsider the Merchant Discount Rate (MDR) charges clause, as passing the MDR to a customer is a business decision of PA/PGs and merchants. Regulatory prescription prohibiting this is not appropriate. Ensuring compliance may also need significant investment of efforts and resources by PAs and PGs and therefore, should be avoided.
Recommendation 10: Do not restrict entities to incorporate themselves only under Company Act 2013, to the exclusion of other innovative reforms. Specifying a form of business with limited focus on functions and risks is not advisable.
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