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The evolution of transactional processing is the outcome of the measured road maps that the Reserve Bank of India (“RBI”) has regularly adopted, acting as a developer, catalyst and a facilitator from the early years. Over the last two decades, payment systems in India have advanced significantly, from the barter system to the Unified Payments Interface.

Laws relating to Transactional Processing are divided into two broad categories, domestic and cross border. Under domestic leg comes the guidelines with respect to Payment Aggregators (“PAs”) and Payment Gateways (“PGs”) followed by the Cross-border compliances involving processing and settlement of import and export related payments facilitated by Online Payment Gateway Service Providers (“OPGSP”) and processing and settlement of small value export and import related payments facilitated by Online Export-Import Facilitators (“OEIF”). This article aims to provide a broad overview of the legal framework governing the transactional processing.

2009 DIRECTIONS

Considering the increase in electronic/ online payments to merchants, RBI for the first time in 2009 had introduced Directions for opening and operation of Accounts and Settlements of payments for electronic payment transactions involving intermediaries. RBI had recognised the issue of funds being transferred in the accounts of intermediaries before the funds were getting transferred in the accounts of merchants. It also recognised that any delay made by the intermediaries to transfer the fund to the merchants would not only affect the rights of the merchants but also the payment space.

2019 DISCUSSION PAPER

The 2019 discussion paper on regulatory options recommended by the RBI suggests a few regulatory ideas for regulating the actions conducted by PAs and PGs based on the current payment ecosystem. 

 Key Highlights of the 2019 Discussion Paper:

1. Authorisation/Licensing: Non-banking PAs and PGs shall require authorisation from RBI under PSSA.
2. Capital Requirements: Entities shall have a minimum net-worth of ₹100 crores to be maintained at all means.
3. Governance and Dispute Management Framework: Promoters of the PAs and PGs entities would need to satisfy the fit and proper criteria prescribed by RBI and such entities shall have board approved policies to handle customer complaints/ grievances, the escalation matrix for disposal of complaints and turn-around-times for complaint resolution.
4. Safeguards against Money Laundering Provisions: The Know Your Customer (“KYC”) / An-Money Laundering (“AML”) / Combating Financing of Terrorism (“CFT”) guidelines shall apply mutatis mutandis to all the PAs and PGs.

2022 DRAFT GUIDELINES

To simplify and rationalise the payment settlement process for import/ export through e-commerce, on April 7, 2022, the RBI released the draft guidelines on OEIFs (“Draft Guidelines”). The Draft Guidelines are intended to replace the existing guidelines for OPGSPs dated September 24, 2015. (“Existing Guidelines”)

PAYPAL PAYMENTS PRIVATE LIMITED v. FINANCIAL INTELLIGENCE UNIT INDIA

PayPal argued that it is only a facilitator platform which conducts two types of transactions, foreign and domestic. According to their arguments PayPal merely provides a facilitator platform and charges a nominal fee for each of the transactions. No foreign exchange is actually collected or paid by the Petitioner platform. RBI took a stand that PayPal is not operating or participating in a payment system, and the PSSA does not apply to the Petitioner.

FIU’s Submissions contended that reading of the definitions of “payment system”, “payment system operator” and “reporting entity” under sections 2(1) (rb), 2(1) (rc) and 2(1) (wa) of the Act, clearly shows that PayPal forms a part of the said definitions provided.

The Court directed PayPal to register itself as a “reporting entity” with FIU-IND as well as to appoint a Principal Officer and communicate the name, designation and address within a period of fifteen days. Further, the court imposed a penalty amounting to INR 96 Lakhs on the Petitioner due to being found as guilty of violations under the provisions of the Act

CONCLUSION

RBI over the period of years right from 2009 has come up has evolved its legislative framework combating the requirements of the society. The implementation of guidelines such as Tokenisation which is due from September 2022, the PayPal case will give us a better idea with respect to pending interpretations in transactional processing. The comments and further implementations of the OEIF draft will further give a better perspective in functioning of the cross-border transactions.

References

https://www.rbi.org.in/scripts/bs_viewcontent.aspx?Id=4118

https://rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=5379

https://rbidocs.rbi.org.in/rdocs/Notification/PDFs/DOIPS241109.pdf

https://www.rbi.org.in/scripts/NotificationUser.aspx?Mode=0

https://rbidocs.rbi.org.in/rdocs/Notification/PDFs/DOIPS241109.pdf

https://www.rbi.org.in/scripts/PublicationReportDetails.aspx?ID=943

https://www.azbpartners.com/bank/new-guidelines-for-processing-digital-payments-in-e-commerce

https://indiankanoon.org/doc/192502277

https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=12050

https://m.rbi.org.in/scripts/FS_Notification.aspx?Id=11449

https://rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=5379

https://www.mondaq.com/india/fin-tech/914612/fintech-laws-in-india–a-primer

https://www.rbi.org.in/scripts/NotificationUser.aspx?Mode=0

https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=11822

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Written by- Aashi Narayan