The Reserve Bank of India (RBI) has allowed payment companies to maintain more than one escrow account with a scheduled commercial bank. At present, pre-paid instrument (PPI) issuers and payment aggregators (PA) are required to maintain one escrow account with a commercial bank. "With a view to diversify risk and address business continuity concerns, it has been decided to allow one additional escrow account in a different scheduled commercial bank," the central bank said in a circular issued on November 17. An escrow account, used primarily in commercial transactions, acts like a holding account for funds while two parties complete a transaction. In the payments industry, an escrow account owned by a PPI or PA protects and the buyer from losing money in case the seller delivers unsatisfactory goods and services or if the seller is a fraudster. It also provides a safeguard in case of disputes or chargebacks between the parties. Let's say a person buys ₹100 worth of goods online, the money is transferred from the buyer's bank account via the PPI or PA to the escrow account and is held there for a temporary period, usually T+2 or 3 days. Once the seller delivers the goods and if no dispute is raised by the buyer, the PPI or PA can then transfer the ₹100 from the escrow account to the sellers' bank account. According to the RBI's circular: An additional escrow account may be maintained with a different scheduled commercial bank at the discretion of the PPI…
