Cross-Border Payment Guidelines-RBI

On 31 October 2023, the Reserve Bank of India (RBI) issued a circular (RBI/2023-24/80 CO.DPSS.POLC.No.S-786/02-14-008/2023-24) bringing all entities (referred to as payment aggregator - cross border [PA-CB]) facilitating cross-border payment transactions for import and export of goods and services under the direct regulation of the RBI is in line with the RBI Payments Vision 2025, which focuses on bringing nonbank entities within the RBI’s regulatory ambit. This follows the draft circular on 'Processing and settlement of small value Export and Import related payments facilitated by 'Online Export-Import Facilitators (OEIF) (erstwhile OPGSP)' issued by the RBI on 7 April 2022 (Draft OEIF Directions)

Under the PA – CB Directions, a 'Payment Aggregator – Cross Border' (PA - CB) has been widely defined to include all entities that facilitate cross-border payment transactions for import and export of permissible goods and services in online mode. Thus, both OPGSPs and Collection Agents would be categorised as PA – CBs, and will be subject to the direct regulatory supervision of the RBI.

Prior to the issuance of the PA – CB Directions, the following non-bank entities were permitted to facilitate cross-border payment transactions for import and export of goods and services:

Entities that had obtained registration with a 'Authorised Dealer Category – I' bank (AD Bank) as 'online payment gateway service providers' (OPGSPs); and
Entities that had obtained a bespoke approval from the RBI to act as a 'collection agent' (Collection Agent) on behalf of a foreign entity.

While the activities of OPGSPs were governed under the circular on 'Processing and settlement of import and export related payments facilitated by Online Payment Gateway Service Providers'' issued by the RBI on 24 September 2015 (OPGSP Guidelines), the activities of Collection Agents were governed under the terms and conditions specified in the bespoke approval obtained from the RBI.

The Department of Payment and Settlement Systems of the Reserve Bank of India (“RBI”) issued the Circular on Regulation of Payment Aggregator – Cross Border, on October 31, 2023 (“PA-CB Guidelines”), bringing all entities facilitating online cross-border payments for import and export of goods/ services, under RBI’s direct regulation, with such entities being termed as payment aggregators - cross-border (“Cross-Border PA”).

By way of PA-CB Guidelines it has now opened up cross-border payment aggregation business for nonbank entities, which was earlier the exclusive domain of AD Banks. Earlier, such entities involved in cross-border payments for import and export of goods and services tied up with Authorised Dealer Category I Banks (“AD Banks”) to operate as online payment gateway service providers (“OPGSPs”) and collection agents, and were supervised through such AD Banks.

With this step the RBI has brought Cross-Border PAs under its direct supervision, which provides additional flexibility, such as increased transaction limits (expected to boost total number of cross-border e-commerce transactions), but also shifts certain compliance responsibilities from AD Banks to Cross Border PAs, such as reporting of suspicious transactions to the Financial Intelligence Unit – India (“FIU-Ind”).

1.Obtaining Authorisation

The non-bank entities willing to work as PA-CB need to obtain approval from the Department of Payment and Settlement Systems (DPSS), RBI, Central Office (CO) in the manner prescribed in the circular.

AD Category-I banks

No separate approval required.

Non-banks which provide PA-CB services as on the date of the circular

Apply to the RBI for authorisation by 30 April 2024 as prescribed in the circular

Non-banks which do not provide PA-CB services as on the date of the circular / new non-bank PA-CB

Seek approval from the DPSS, RBI and CO prior to commencement of PA business (a single authorisation will be required by a non-bank to undertake PA and PA-CB activity).

In addition, the entities need to ensure adherence to the guidelines on governance, merchant on-boarding, customer grievance redressal and dispute management framework, baseline technology recommendations, security, fraud prevention and risk management framework as provided by the RBI in the circular dated 17 March 2020 (within a period of three months from the date of RBI’s circular for entities providing PA-CB services). The compliance should be ensured on an ongoing basis to retain the authorisation.

2. Minimum Net Worth criterion

The net worth criterion is provided for non-bank entities as below:

Non-banks which provide PA-CB services as on the date of the circular	INR 15 crore at the time of submitting application to the RBI for authorisation; INR 25 crore by 31 March 2026
Non-banks which do not provide PA-CB services as on the date of the circular / new non-bank PA-CBs	INR 15 crore at the time of submitting application to the RBI for authorisation; INR 25 crore by end of the third financial year of grant of authorisation

3. Maintenance of collection account

Import PA-CB and export PA-CB shall maintain an import collection account (ICA) and export collection account (ECA) respectively, with an AD Category-I scheduled commercial bank. In case a PA-CB also engages in domestic PA activity, the ICA and ECA shall be kept separate from the escrow account(s) opened for such PA activity.

4. Agreement with merchants

PA-CBs may enter into an agreement and on-board merchants located abroad or collaborate with e-commerce marketplaces or entities providing PA services abroad.

5. Customer Due Diligence

PA-CBs would be required to undertake customer due diligence for merchants (i.e. directly onboard merchants, e-commerce marketplaces or entities providing PA services abroad) as per the Master Direction – Know Your Customer (KYC) Direction, 2016. It would have to collect all the necessary documents from the merchants and ensure that ongoing due diligence is done. It would have to maintain the KYC records for at least five years and provide necessary information and cash transaction reports (CTR)/suspicious transaction reports (STR) to the director of Financial Intelligence Unit - India (FIU-IND). The adherence to compliance and reporting requirements will necessitate a substantial financial outlay for non-bank entities.

KYC Requirements:

General

i. Import Transactions:

Customer due diligence, as per RBI’s extant guidelines to be undertaken by Cross Border PAs on merchants or e-commerce platforms or PAs overseas, as the case may be. If value of transactions is above INR 2,50,000, customer due diligence on buyer to also be undertaken.

ii. Export Transactions:

Customer due diligence, as per RBI’s extant guidelines to be undertaken by CrossBorder PAs on Indian merchants or e-commerce platforms or domestic PAs, as the case may be.

a. On-boarding:

i. Import Transactions: Cross-Border PAs may directly on-board overseas merchants or enter into an agreement with e-commerce platforms/ foreign PAs.

ii. Export Transactions: Cross-Border PAs may directly on-board Indian merchants or enter into an agreement with e-commerce platforms/ domestic PAs.

b. Transaction Limits:

The maximum value per unit of goods/ services must not exceed INR 25,00,000.

c. Flow of Funds:

i. Export Transactions: Export proceeds must be entirely credited to the Export Account and thereafter, settled directly in the account of Indian exporter/ merchant, or be routed through a domestic payment aggregator (“PA”).

ii. Import Transactions: Payments for imports to be received in a PA escrow account, which shall then be transferred to the Import Account, and thereafter, be debited from the Import Account to the foreign importer/ merchant or foreign PAs

d. Deadlines:

i. December 30, 2023: Non-bank PAs that engage in Cross-Border PA activities must inform the RBI about their decision to continue or discontinue such activities.

ii. January 31, 2024: All existing non-bank CrossBorder PAs must comply with certain provisions1 of the Guidelines on Regulation of Payment Aggregators and Payment Gateways, dated March 17, 2020 (“PA Guidelines”).

iii. April 30, 2024: All non-bank Cross-Border PAs must register with FIU-Ind and apply for authorisation.

iv. July 31, 2024: All existing non-bank Cross-Border PAs must submit evidence of application for authorisation to prevent closure of their bank accounts.

A Closer View of RBI PA-CB guidelines

a. OPGSPs/ Collection Agents:

i.                    Now under direct regulation of RBI, as opposed to supervision through AD Banks.
ii.                  The PA-CB Guidelines has adopted certain requirements from the erstwhile Cross-Border PA regime, allowing flexibility in activity scope and additional compliance requirements leading to organizational changes.
iii.                Will now require a locally incorporated entity to apply for Cross-Border PA authorisation, as opposed to a liaison office.
iv.                Flexibility in terms of licensing i.e., Import PA/ Export PA/ Export-Import PA.
v.                  Flexibility to tie-up with domestic/ overseas PAs, as required for existing/ future business models.
vi.                Transaction limits for OPGSPs, now set at INR 25,00,000 per unit of goods/ services, as opposed to ~INR 1,60,000 (USD 2000) for import and ~INR 8,30,000 (USD 10,000) for export transactions.
vii.              Risk of bank accounts closure in case of failureto submit evidence of application for authorisation by July 31, 2024.

b. Domestic PAs:

i. Non-banks players may opt for single authorisation to undertake PA and Cross-Border PA business.
ii. Domestic PAs, awaiting final approval and presently not undertaking Cross-Border PA activity, can apply for Cross-Border PA only after final PA authorization.
iii. Flexibility to tie-up with Cross-Border PAs, to provide cross-border payment services to existing Indian merchants.

c. Foreign PAs/ E-commerce Entities:

i. Flexibility to tie-up with Cross-Border PAs registered with the RBI, to provide services to their existing foreign merchants.
ii. Will be subject to customer due diligence (to be undertaken by Cross-Border PA) as per extant RBI guidelines.
iii. If a foreign PA has partnered with card networks directly to receive funds (for card payments) in an overseas jurisdiction, no requirement for CrossBorder PA authorisation/ tie-up with Cross-Border PA.

Potential business PA-CBs:

PA-CBs can offer several services to customers like:

1. Currency conversion and hedging PA-CBs can provide currency conversion facility to the customers. They may also help provide foreign exchange hedging facility to customers after evaluating the requirement.

2. Wallet payments PA-CBs can enable wallet-based payment facilities for customers. They can also tie up with other wallet providers and offer wallet payment interoperability.

3. QR-based payments Export PA-CBs can provide proxy identifiers such as QR code to customers for receiving payments without sharing actual bank account details. This facility allows customers to remain carefree about communicating the change, if any, in the underlying bank account linked to the PA-CB. Customers may be provided with the feature of generating multiple QRs as well, which can help to track and reconcile payments.

4. Line of credit facility Import PA-CBs may offer credit facility to the customer. Using this, customers may be able to make instant payments to the seller/ beneficiary

5. Integrating business model with payment links Export PA-CB can integrate/embed the payment links for remittances with the business model of the customer – for example, a payment link generated through website/chatbots to enable the customer to receive payments seamlessly. Moreover, notification on receipt of payment can also be enabled.

6. Shareable payment links PA-CBs can accept payments by generating payment links on behalf of the customer for receiving payments without a website. The link may be embedded or shared with the payee to collect the amount.

7. Recurring payments PA-CBs can enable customers to make recurring cross-border payments and also manage their subscriptions.

8. Virtual account management Export PA-CBs can provide virtual account management services to customers, which can facilitate tracking the receivables and reconciliation of the payments.

9. Export bill discounting Export PA-CBs can provide export bill discounting service to the seller. This may be backed by the letter of credit document issued by the importer’s bank.

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