The Reserve Bank of India’s (RBI) proposed draft circular has sent ripples through the payment aggregator industry, with concerns mounting over the potential impact on smaller online merchants. The new guidelines aim to strengthen know-your-customer (KYC) measures for businesses using payment aggregators to accept digital payments, a move prompted by recent incidents of non-compliance with existing KYC rules. Under the proposed guidelines, payment aggregators would be required to conduct ‘contact point verification’ for both existing and new merchants. This involves sending someone to physically verify the existence of the business premises, a step that was previously not mandatory. Industry executives have expressed concerns that these enhanced KYC requirements may disproportionately affect smaller online merchants. They argue that payment aggregators may be hesitant to spend additional resources on enhanced KYC for merchants with limited transaction volumes. As a result, smaller merchants may face increased costs and reduced access to payment aggregator services. The primary grouse of the industry lies in the removal of an exception granted in the earlier 2021 regulations. The earlier guidelines exempted payment aggregators from implementing the ‘entire process of KYC’ for merchants that already had bank accounts for settling transactions. Now, businesses would need to undergo another round of KYC with the payment aggregator to receive payments into their existing bank accounts. Industry experts contend that this dual KYC process is redundant and costly for small sellers. They argue that merchants already complete KYC with their banks to open accounts, rendering the additional KYC by payment aggregators unnecessary. Moreover, the physical verification of business premises may prove challenging and expensive, adding another layer of burden on small businesses. The new guidelines have also raised concerns about their effectiveness in preventing fraud. Industry experts argue that physical verification of business premises does not guarantee that the business is legitimate or that it is conducting activities as claimed. They emphasize that fraudsters can easily create shell companies and provide false documentation to pass the physical verification process. Additionally, some experts have suggested that the proposed guidelines may be more focused on ‘know your business’ (KYB) rather than KYC, with the aim of verifying the nature and operations of the business. While acknowledging the importance of preventing fraud, industry experts argue that the proposed guidelines need to strike a balance between regulatory oversight and the ease of doing business for legitimate small merchants. They believe that RBI should consider alternative measures to address concerns without imposing excessive burdens on smaller players in the digital economy.
RBI’s Enhanced KYC Guidelines for Payment Aggregators Raise Concerns for Small Merchants
