The Reserve Bank of India (RBI) is reportedly contemplating the implementation of a licensing framework for point-of-sale (POS) operators. This move is expected to have significant implications for major players in the industry, including Pine Labs, Paytm, MSwipe, and BharatPe. The objective behind this proposed measure is to ensure operational consistency and create a level playing field between online and offline payment operators. However, if licences become mandatory, it raises questions about the eligibility .
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Current Scenario
While existing regulated entities such as banks and non-banking financial companies (NBFCs) operating in the POS domain will remain unaffected, third-party operators will be required to obtain licenses to continue their operations. The surge in the number of third-party operators compared to regulated entities in the offline payments sector has highlighted the need for this licensing regime.
The Need for Regulation
The RBI aims to proactively address potential issues arising from the expansion of the offline market by implementing regulatory changes. Banks have increasingly favored third-party POS players over in-house operations due to their business efficiency. However, this growth has raised concerns regarding cash loans on credit cards, data storage practices, and fund management in the offline payments ecosystem.
Proposed Licensing Framework
Under the proposed licensing regime, POS operators may be subjected to specific norms, including a minimum net worth requirement of Rs 25 crore and meeting the RBI’s fit and proper conditions. This framework aims to enhance regulatory oversight and ensure compliance with security measures. However, the introduction of mandatory licenses raises questions about the eligibility of players like BharatPe and Paytm, which are awaiting RBI approval for payment aggregator services, to operate in the offline POS segment.
Addressing Key Concerns
The need for a licensing framework stems from three main concerns.
Firstly, there has been a notable increase in cash loans on credit cards within the informal sector, highlighting potential cash transactions facilitated by merchants handling the POS. While third-party operators are responsible for Know Your Customer (KYC) procedures, the current system lacks foolproof mechanisms to detect and address deficiencies.
Secondly, the data storage practices of POS transactions vary among operators, governed by agreements between issuing banks and third-party operators. Harmonizing these practices is crucial for security reasons and to ensure the protection of sensitive customer information.
Lastly, concerns arise regarding fund management by third-party players. Settlement with merchants often involves a delay of one day, which poses risks associated with unregulated entities stocking cash. While no major lapses have been reported thus far, the exponential growth of the business in recent years has brought fund management to the forefront of regulatory concerns.
Settlement with merchants often involves a day’s lag, posing risks associated with unregulated entities stocking cash.
https://bfsi.economictimes.indiatimes.com/news/policy/rbi-may-bring-licensing-regime-for-pos-players-impact-pine-labs-paytm-among-others/109328779?utm_source=top_story&utm_medium=homepage
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Leveling the Playing Field
The potential introduction of a licensing regime for POS players by the RBI underscores the importance of regulatory oversight and a secure environment in the offline payments ecosystem. This move aims to address concerns related to cash loans, data storage practices, and fund management, while creating a level playing field for all players in the financial services sector.
As the industry awaits further developments, stakeholders such as Pine Labs, Paytm, and other POS operators will need to closely monitor the regulatory landscape and ensure compliance with any new licensing requirements. Ultimately, the proposed licensing regime seeks to foster transparency, mitigate risks, and promote consumer trust in the rapidly evolving payments industry.
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