I. PayU: The Latest Payment Aggregator

  1. Fintech firm PayU has recently locked the limelight by announcing that it received in-principle approval from the Reserve Bank of India (RBI) to function as a payment aggregator (PA). This feat is achieved under the provisions of the Payment and Settlement Systems (PSS) Act, 2007.
  2. The in-principle approval grants PayU the right to onboard new merchants. However, the process of gaining final approval usually spans six months to a year.

II. Understanding the Role of a Payment Aggregator

  1. A PA primarily serves as a link between businesses and financial institutions, assuming responsibility for payment processing on behalf of merchants.
  2. It simplifies the process of accepting electronic payments for businesses, streamlining the payment acceptance procedure and relieving businesses from the complexities of establishing direct dealings with financial entities.
  3. They empower businesses, allowing acceptance of a diverse range of payment methods like credit cards, debit cards, e-wallets, and bank transfers through a unified platform.
  4. Prominent examples of PAs include Google Pay, Amazon Pay, Phone pe, and PayPal.

III. Capital Requirements and Authorization Process

  1. Aspiring PAs must possess a minimum net worth of Rs 15 crore at the time of application. This figure should elevate to Rs 25 crore by the end of the third financial year succeeding authorisation.
  2. The authorisation process distinguishes banks and non-bank PAs. While banks can offer PA services as a part of their conventional banking relationship without needing separate authorisation, non-bank PAs require distinct authorisation from RBI under the PSS Act, 2007.

IV. Settlement and Escrow Account Management

  1. Non-bank PAs have to keep the accumulated funds in an escrow account with a scheduled commercial bank.
  2. They are bound to follow certain timelines for settling funds with merchants based on the transaction lifecycle and mutually decided terms.

V. Key Differences: Payment Aggregators vs Payment Gateways

  1. Unlike PAs, Payment Gateways (PG) provide an interface technology infrastructure to route and facilitate the execution of online payment transactions but do not involve direct handling of funds.
  2. Conversely, PAs allow multiple payment options on their portal for merchants, incorporating the functions of a payment gateway.

VI. Overview of Payment and Settlement Systems (PSS) Act, 2007

  1. Enacted in 2007, the PSS Act supervises the regulation of payment systems in India and names RBI as the authority in control.
  2. RBI, in accordance with the Act, can establish a Committee of its Central Board called the Board for Regulation and Supervision of Payment and Settlement Systems (BPSS) to execute its powers, duties, and functions.
  3. According to Section 4 of the PSS Act, only RBI can authorise the functioning of a payment system. Any entity desiring to run a payment system must apply for authorization under Section 5 of the PSS Act, 2007.
  4. The Act does not prevent foreign entities from operating a payment system in India nor does it discriminate between foreign and domestic entities.
  5. Unauthorised operation of a payment system, non-adherence to RBI guidelines, or violation of any PSS Act provisions can lead to criminal proceedings initiated by RBI against the violator.