Payment Gateway: Know what to expect when registering for PG?


Entry Point Norms post-Authorization

Every Non-Bank Payment Gateway requires authorization from RBI under PSSA. Therefore, every existing Payment Gateway must apply for authorization. However, from the date of such guidelines, they must be given one financial year to comply with the entry point norms and other technology, security, storage, etc. norms issued in the regard.

E-commerce as a Payment Gateway

Every e-commerce marketplace acting as a Payment Gateway to other merchants must stop the activity within three months. If they desire to pursue this activity, then the Gateway license holder must separate the activity(s) from the marketplace business. Also, the separate entity must comply with the regulations.

Banks as Payment Gateways

Banks acting as Payment Gateways must obtain authorization or approval under PSSA and a No Objection Certificate from the regulatory department of RBI.

Company as a Payment Gateway

Entities undertaking Payment Gateways activity must be a company incorporated in India under the Companies Act of 2013. Also, the Memorandum of Association (MoA) of the applicant entity must cover the proposed activity of operating as a Payment Gateway.

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Payment Gateways must deal only with merchants with a physical presence in the country.

Payment Gateway: Capital Requirements

Net-worth Requirement

Net-worth Maintenance

Capital requirements of a Payment Gateway System must have a minimum net worth as prescribed for Bharat Bill Payment Operating Unit (BBPOUs). Furthermore, they must maintain such an amount at all times.

Current Net-worth

Currently, the net worth requirement of a Payment Gateway license is ₹ 100 crore.

Net-worth Compliance

Existing Payment Gateways must comply with this net-worth requirement within one year after the issuance of guidelines by RBI.

Net-worth Composition

Net worth must consist of paid-up equity capital and preference shares which are compulsorily convertible into the following:

  • Equity Capital
  • Free Reserves
  • Balance in share Premium Account
  • Capital Reserves

Surplus from Sale Proceeds

The above-mentioned represents a surplus arising from the sale proceeds of assets. But these surpluses are not reserves created by revaluation of assets adjusted for accumulated loss balance, the book value of intangible assets, and deferred revenue expenditure, if any.

Convertible Shares

Convertible preference shares can be compulsorily, either non-cumulative or cumulative. Also, they can be compulsorily convertible into equity shares. The shareholder agreements must specifically prohibit any withdrawal of this preference capital at any time.

Entities with Foreign Investments

Entities having Foreign Direct Investment (FDI), Foreign Portfolio Investment (FPI), and Foreign Institutional Investment (FII) must also meet the capital requirements as applicable under the extant Consolidated FDI policy guidelines of the Government of India.

Non-Compliance with Capital Requirement

Entities unable to comply with the net-worth requirement within the stipulated time frame must, above all, not apply for authorization. But they can wind up payment aggregation business within one year of issuance of guidelines. The banks presently maintaining nodal accounts of such entities must report compliance in this regard.

Payment Gateway Governance

Entity Management

The Payment Gateway entity must be professionally managed. Also, the Company’s promoters must satisfy RBI’s fit and proper criteria.

Agreements with the Stakeholders

The agreements between aggregators, merchants, acquiring banks, and all other stakeholders must delineate the role and responsibilities of the involved parties in the following:

  • Sorting Complaints
  • Handling Complaints
  • Refund
  • Failed Transactions
  • Return Policy
  • Customer Grievance Redressal, including turnaround time for resolving queries
  • Dispute Resolution Mechanism
  • Reconciliation

Information Disclosure

The Gateway must disclose comprehensive information regarding the following:

  • Merchant Policies
  • Pricing
  • Customer Grievances
  • Privacy Policy
  • Terms & Conditions on the website as well as the mobile application

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Board Approved Policy

The entity must have a board-approved policy for the following:

  • Disposal of Complaints
  • Dispute Resolution Mechanism
  • Timelines for Processing Refunds

Nodal Officer appointment

The entity must appoint a Nodal Officer responsible for regulatory as well as customer grievance handling functions. The Gateway must also display the details of the nodal officer prominently on their website.

Payment Gateway: Safeguards against Money Laundering

The guidelines issued by the Department of Banking Regulation, RBI, in their Master Direction – Know Your Customer (KYC), must apply the following mutatis mutandis to all Payment Gateway entities:

  • Know Your Customer (KYC)
  • Anti-Money Laundering (AML)
  • Combating Financing of Terrorism (CFT)

If you want to know the extent of authorization, governance, and capital requirement of a Payment Gateway, then read this article.