Heartburn for payment aggregators as new KYC rule looms
Arecent central bank directive has rattled payment aggregators, who may have to put more feet on the street to check if a business is legitimate before signing them up as merchants.
Aggregators such as Razorpay, Cashfree Payments India Pvt. Ltd and PayU are intermediaries that facilitate digital payments between consumers and merchants or businesses.
The Reserve Bank of India (RBI) in a recent draft circular proposed stricter know-yourcustomer (KYC) guidelines for businesses that use payment aggregators to accept digital payments. Customer verification guidelines act as a vital safeguard against money laundering by mapping each account to a bonafide customer.
According to two industry executives, the new guidelines would likely impact smaller online merchants because payment aggregators might not be willing to spend additional money on them for enhanced KYC, given that their earnings from such merchants are limited.
RBI’s concerns seem to have stemmed from recent events where some players were found to have not followed its KYC rules, forcing the regulator to step in.
RBI has proposed ‘contact point verification’ of both existing and new merchants, which involves payment aggregators sending someone to physically verify the existence of the business. Under the 2021 guidemerchant lines, payment aggregators were not required to implement the “entire process of KYC” for merchants that already have bank accounts for settling transactions.
The primary grouse of the industry is that the draft proposes to do away with an exception granted in the earlier regulations from 2021.
“Today, when you want to set up an online business, you need to first register as an entity, then do a full KYC with a bank to open a bank account for that entity. This draft guideline says that for getting payments into that bank account, you need to do another round of KYC with the payment aggregator,” said the chief executive of a fintech company that processes digital payments, on the condition of anonymity.
RBI’s proposed new guidelines would not necessarily guard against frauds since a would have already completed the KYC process with a bank, the CEO added.
“For small sellers, the dual KYC can be expensive and will increase the cost so much that most players will stop serving small online merchants. These include people selling on Instagram and Facebook, where the value and volume of transactions are small,” said the CEO.
A spokesperson for Razorpay declined to comment. Cashfree Payments and PayU did not respond to emailed queries. A separate email sent to RBI remained unanswered.
Some industry experts insist there are better ways to check