According to a report by EnTracker, the direct-to-customer tech company Instamojo is now going to carry out its payment aggregation services in partnership with licensed payment aggregators. This development comes after the company’s application for a payment aggregator license was returned by the Reserve Bank of India (RBI) on September 27, 2023. EnTracker’s report suggests that the company’s application was returned due to failure to meet the eligibility criterion for licensing. The company plans to re-apply for a payment aggregator license in the next financial year.
MediaNama spoke to Instamojo’s co-founder Akash Gehani who explained that the criteria the company had failed to meet was the net worth criteria set out by the RBI. The reason for this failure, Gehani argued was that “the way we [Instamojo] arrived at our net worth and the way RBI arrived at it, there was a difference in the methodology. RBI has, in a positive light, they told us very clearly this [net worth] is the only reason. So, in terms of business model, in terms of, the way the entire business is structured, in terms of, our compliance policies, I think everything else is very… they’re very happy with everything else.”
Under RBI’s Guidelines on Regulation of Payment Aggregators and Payment Gateways, online non-bank payment aggregators (PAs) are required to apply for authorization. As of February 2023, this license has been granted to about 32 companies. These guidelines require PAs online non-bank payment aggregators existing as on existing as on March 17, 2020 should have a net worth of Rs. 15 crore on the date of license application or as of 31 March 2021, whichever is earlier. Further, they are also required to have a net worth of Rs.25 crore as of 31 March 2023. Gehani did not explain the differences between how RBI and Instamojo calculate net worth.
How will this altered business model impact Instamojo?
Instamojo entered the payments space within one year of starting their business and as of 2018, 100% of their revenue came from the payments business. According to the company’s latest annual report (which is from 2019) it had 250,000 active merchants on its platform and 89% of its revenue came from MojoPayments. It charges the merchants who use its services 2% of the transaction amount +Rs. 3 on every transaction made using their services.
When asked how the partnership with other Payment Aggregators(PAs) will affect transaction charges, Gehani responded that the company has made no changes to its pricing currently. He acknowledged that the partnerships will cost the company money in the short run, but said that because of these partnerships and the introduction of certain new subscription products “we [Instamojo] have been able to overcome most of the challenges. And I think after this disruption is over, I think things will be back to normal soon enough.”
What separates Instamojo’s regulatory limbo from others:
Speaking about others whose application was returned for failing to meet net worth criteria, Gehani pointed out that the other players’ applications were returned at a time when “RBI had come up with this exemption period wherein they could re-apply in a matter of six months.” In Instamojo’s case, that exception period couldn’t apply. “The first time we spoke to RBI after our application was submitted or rather when this particular point was raised, about the net worth, was after the exemption period had got over,” Gehani said adding that as a result of this, the company never got a chance to make a fresh application around that.
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