A new dawn for cross-border payments

RBI has issued rules for payment aggregator cross-border licences that will be mandatory for entities providing cross-border payment services. (Image: Pixabay)
RBI has issued rules for payment aggregator cross-border licences that will be mandatory for entities providing cross-border payment services. (Image: Pixabay)


  • Wider horizons for fintechs, advantage for financially stronger players

New Delhi: India’s new rules on cross-border payments may separate the men from the boys in e-commerce payments, with the stronger ones securing mandatory licences and the smaller ones providing technology support.

The Reserve Bank of India (RBI) on Wednesday issued rules for payment aggregator cross-border (PA-CB) licences that will be mandatory for entities providing cross-border payment services. Applicants can choose to facilitate payments for imports, exports, or both. A key condition is that the applicant, say a fintech, must have a minimum net worth of 15 crore, and raise it to 25 crore by 31 March, 2026.

According to Movin Jain, founder of Skydo, a cross-border payments company, the neworth criterion may burden some startups. “But I do feel that it is important because the RBI recognizes that unless you have strong financials, it is difficult to get assurance to consumers i.e. SMBs", Jain said.

The new rules also broaden the horizons for fintechs operating in the sector.

Former NTT Data India CEO Dewang Narella, founder of cross-border payments company HiWi, said, “The new regulation broadens the market, allowing fintechs and others to enter this space. This allows a level playing field. Earlier, banks were doing most of the work, but now, for merchants, there is far more choice of players, instead of just going to banks."

Another payments fintech founder said that currently, companies in this space partner a bank, and the bank writes to the RBI on the fintech’s behalf. “Only after the RBI blessed the arrangement, a fintech could have operationalized the business. The companies were earlier dependent on their partner bank for both operations as well as regulation. We will still be dependent on a bank to operate, but not dependent on them for regulation. RBI will directly oversee us."

An export PA-CB will be required when an Indian merchant sells goods and services abroad and the money comes to India; whereas import PA-CB is needed when a foreign company charges Indian consumers (such as small businesses) and the money moves out of India. Applicants can also seek licences to provide both import and export services.

To illustrate, when a foreign merchant such as Facebook sells an advertising service in India, an import PA-CB provider, say Stripe, will process the transaction and transfer money abroad via a bank. Similarly, when an Indian company sells services abroad, and if Skydo is the payment aggregator partner, it will process the transaction, collect money and settle it in the Indian client’s account.

“If you are touching money, you better have that net-worth from the risk point of view. Small startups can have an option of being just a technology provider and work with banks and not touch money," Narella of HiWi said. He added that his company will have to discuss with the board before applying for a licence.

The industry expects many companies, including most domestic payment aggregators, to apply for the new licence. “Every PA who applied for a domestic PA licence will automatically apply for cross-border PA licence because it’s the same payment method; just the merchant location is different," a co-founder of a payment aggregator stated. All companies currently offering such services must apply for a licence within 60 days.

However, according to a senior banker, RBI is now regulating “every aspect" of financial services. “All this is going to make the big become bigger, and as far as the RBI is concerned, to operate in these segments a company needs stamina, hygiene, size and scale, and also who is under the regulatory purview. That said, innovation can now only happen in other areas because the core business areas are already under regulation," the banker said on condition of anonymity.

A former banker, who now works with a global cross-border payments company, said many Indian payments companies will apply for the export PA-CB licence since the operations are similar. But to become an import PA-CB, there will be a challenge. “When you are onboarding a foreign merchant, you need to have a set-up in those regions because the RBI requires you to do complete KYC and due diligence of the merchant if the per unit goods/services imported is more than 2,50,000. The RBI is cautious when the money flows out of India. In cross-border payments, the transaction currency and account currency (where the settlement happens) will always be different. If the transaction happens in INR, the settlement will be in dollars...and India will have to part with dollars," he said.

In September 2015, the RBI first issued rules for Online Payment Gateway Service Providers (OPGSP). In April 2022, it then proposed to modify these norms, issuing draft guidelines on ‘processing and settlement of small value export and import related payments’ facilitated by Online Export-Import Facilitators (OEIF). However, RBI did not finalize the draft, and instead has issued the PA-CB rules.

The OPGSP guidelines were issued by RBI’s foreign exchange department, while the PA-CB regulation comes from its payment and settlement systems department.

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