RBI cleans online payment pipes

The batch of applications for online payment aggregators approved by the RBI in principle this week plugs a gap in oversight of ecommerce and data protection. Payment aggregators have to adhere to prescribed capital, governance and technology standards that are meant to protect consumer rights. They are also required to have systems in place for dispute resolution. Data collection and storage rules in step with overall privacy guidelines will apply and carve-out is needed from ecommerce functions. Payment aggregators are also required to filter pass-through of charges such as the merchant discount rate (MDR) for credit card transactions to the customer. They have a role in onboarding merchants with the right credentials, payment processing capabilities and data protection systems.

The need to separate payment aggregation from ecommerce activities was necessary to avoid dual regulation, but it drives a wedge into a core business activity of online marketplaces. Subsequent regulation of ecommerce will have to stay off this aspect of the business that plays a critical role in customer acquisition. This should help reduce some extra advantages online marketplaces enjoy that allows for greater concentration. Banks that provide payment aggregation services, however, are not required to spin these off into separate companies. This creates an asymmetry in treatment of the data intermediaries can share with clients. Banks, however, are subject to stringent data collection, processing and transfer regulations.

The banking regulator has separately clarified that payment regulators will need to meet digital lending guidelines if they wish to offer credit service facilities. This sequesters transactions, a fee-based service, from lending that requires entirely different risk-assessment capabilities. Payment aggregators have a vantage point in converting consumers into borrowers but the RBI is clear that all lending be conducted by entities regulated by it or other statutory bodies till such time as the government enacts a law about unauthorised credit.