The Evolving Landscape of Payment Aggregators in India
The early years of the 2020s saw a significant shift in the Indian payment ecosystem with the introduction of Payment Aggregators (PAs) by the RBI. These new entities, along with the accompanying regulations, brought about changes in the form of escrow accounts, capital requirements, and baseline technology recommendations. These guidelines were specifically targeted towards online payments, particularly those involving non-delivery versus payment (DVP) transactions, reflecting the need for enhanced security in the digital payments space.
Fast forward to 2024, and we now have three distinct types of PA licenses:
PA-O: Payment Aggregator Online
PA-CB: Payment Aggregator Cross Border
PA-P: Payment Aggregator Physical POS
While the introduction of PA-P licenses may seem like an overreach, it could be interpreted as a precautionary measure to address potential risks in the physical POS space.
Addressing Vulnerabilities in Digital Payments:
The rise in fraudulent transaction volumes and values necessitated stricter security measures in digital payments. This led to the evolution of 2FA, from ACS to 3DS and its latest versions. Additionally, the growing presence of Indian entities abroad and non-Indian players in India underscored the importance of regulating cross-border transactions, given the discrepancies in regulatory requirements and technology safeguards.
PA-P: A Wait-and-See Approach:
While the RBI's decision to mandate PA-P licenses for physical POS transactions might seem premature, it could be viewed as a proactive move to mitigate potential risks before they become significant. However, the limited information available on fraudulent EDC/POS transactions suggests that the full impact of these licenses remains to be seen. The detailed technology recommendations for PA-P, once available, will provide further clarity on their specific requirements and their effectiveness in addressing potential risks compared to PA-O and PA-CB licenses.
Impact on Split Payments:
A key aspect of the recent RBI guideline is the removal of the provision for debiting escrow accounts for payments to other accounts based on merchant instructions. This suggests a potential restriction on split payments, where the PA will settle payments directly to the registered merchant, who then becomes responsible for settling with marketplace brands.
The introduction of PA licenses and the recent changes in split payment regulations highlight the RBI's focus on building a secure and compliant financial ecosystem in India. The PA-P license, while seemingly proactive, presents an opportunity for further observation and analysis as we await the detailed technology recommendations and their implications for the physical POS payment landscape.
Let's discuss the implications of the PA-P license and its potential impact on the payment industry. What are your views?
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