Decoding RBI’s Cross-Border Payment Policies

In a groundbreaking development, the Reserve Bank of India (RBI) has initiated a transformative set of regulations that hold significant implications for entities involved in cross-border payments related to the import and export of goods and services. These regulatory revisions specifically target Payment Aggregator-Cross Border (PA-CB) services, marking a notable shift in the landscape of financial oversight.

What are Cross-border payments?

Cross-border payments refer to financial transactions that occur between parties in different countries. These payments involve the transfer of funds, goods, or services across international borders, often requiring the involvement of multiple financial institutions and payment systems to facilitate the transaction. Cross-border payments can occur for various reasons, including trade, investment, remittances, or other financial activities between individuals, businesses, or governments located in different countries. These transactions may involve different currencies, exchange rate considerations, and compliance with international regulations and standards. The goal is to facilitate the seamless transfer of value across borders, promoting global economic interactions and financial connectivity.

Some Examples of Cross-Border Payments

• Bank transfers
• International wire transfers
• Electronic funds transfers
• Credit card payments
• Debit card payments
• Prepaid debit card payments
• Global ACH payments
• Digital currencies
• Digital wallets
• Mobile wallets
• Buy now, pay later
• Blockchain-based payments
• Voucher-based payments
• Cash-based payments
• Paper checks

Direct Oversight by RBI

In a decisive move, the RBI has chosen to directly regulate all entities engaged in facilitating cross-border payments, categorizing them collectively as Payment Aggregator-Cross Border (PA-CB). This regulatory scope encompasses both non-banking entities and Authorized Dealer (AD) Category-I banks. While AD Category-I banks are exempted from the requirement of seeking separate approval for engaging in PA-CB activities, non-banking entities offering such services are mandated to obtain authorization from the RBI by April 30, 2024.

A crucial aspect of this regulatory framework is the stipulated grace period, during which non-banking entities can continue providing their services while awaiting the RBI’s decision. This measured approach reflects the RBI’s commitment to ensuring a smooth transition for entities impacted by these regulations.

What should be the Net Worth?

In a strategic move to bolster financial stability, the RBI has introduced a net worth criterion applicable to non-banking entities engaged in Payment Aggregator-Cross Border (PA-CB) services. As of the circular date, these entities must showcase a minimum net worth of ₹15 crore during the application for authorization. This requirement escalates to ₹25 crore by March 31, 2026. Failure to meet these specified criteria or submit an authorization application within the prescribed timeframe will lead to the cessation of PA-CB activities by July 31, 2024.

Authorization Categories for PA-CB

Entities seeking authorization for PA-CB activities can choose from three distinct categories: export-only PA-CB, import-only PA-CB, or export and import PA-CB. Each category is accompanied by its own set of regulations and requirements, ensuring strict adherence to the directives outlined by the RBI.

Customer Due Diligence

Highlighting the paramount importance of secure financial transactions, the RBI places a significant emphasis on customer due diligence, especially for transactions exceeding ₹2.5 lakh. In such cases, PA-CBs are obligated to conduct thorough due diligence on the buyer. The responsibility for customer due diligence lies with the merchant, and proceeds from the Export Collection Account (ECA) will only be settled in the account of such merchants.

FIU-IND Enrollment Requirement

As a prerequisite for obtaining RBI authorization, non-banking Payment Aggregator-Cross Border (PA-CB) entities are mandated to complete registration with the Financial Intelligence Unit-India (FIU-IND). This additional procedural step underscores the commitment to transparency and the rigorous enforcement of anti-money laundering and counter-terrorist financing measures, thereby fortifying the overall regulatory framework.

Payment Aggregators and Fintech Landscape

In response to the RBI’s stringent regulations, payment aggregators and fintech companies, integral components of India’s digital financial ecosystem, are meticulously assessing the impact on their operational landscapes. While the net worth criteria and the looming April 30, 2024, authorization deadline present challenges, the net worth criterion, though potentially burdensome for startups, plays a crucial role in instilling confidence, particularly among small and medium-sized businesses (SMBs).

Fintech innovators, often leading technological advancements, acknowledge the necessity of regulatory frameworks that strike a balance between innovation and robust financial structures. Payment aggregators, in particular, hold a pivotal position in facilitating seamless acceptance of various payment instruments by e-commerce sites and merchants. These entities streamline the payment process by efficiently collecting payments from customers, pooling them, and subsequently transferring them to merchants. The prolonged delay in obtaining payment aggregator licenses has been a persistent concern, and the new regulations present both challenges and opportunities for these players to align with regulatory expectations.

Anticipating the Future

Against the backdrop of a global surge in cross-border payments, the RBI’s regulations are poised to establish a resilient framework for entities facilitating these transactions. As the financial landscape continues to evolve, the increasing volume of transaction flows underscores the critical importance of secure and streamlined cross-border payment systems. Navigating these dynamic shifts, the financial industry eagerly awaits further updates and refinements in the regulatory framework, creating an environment conducive to innovation and sustained growth.

Navigating Cross-Border Payment Methods

What is meant by SWIFT Transfers?

Understanding the SWIFT (Society for Worldwide Interbank Financial Telecommunication) system is essential for businesses engaged in cross-border transactions. This secure messaging platform facilitates efficient communication between financial institutions, ensuring the smooth flow of funds across borders. Our step-by-step guide demystifies the SWIFT transfer process, empowering you to execute transactions seamlessly.

Why Digital Payment Platforms are Essential?

In the era of digitization, leveraging digital payment platforms for cross-border transactions is becoming increasingly prevalent. We explore the array of options available, highlighting the advantages and potential pitfalls associated with each. From e-wallets to cryptocurrency, our insights provide a roadmap for businesses seeking the most suitable digital payment solution.

Mitigating Risks and Ensuring Compliance

Exchange Rate Management

Fluctuations in exchange rates can significantly impact the outcome of cross-border transactions. Our expert analysis equips you with strategies to mitigate exchange rate risks, ensuring that your transactions remain financially sound even in volatile market conditions.

Anti-Money Laundering (AML) Measures

Compliance with RBI regulations extends beyond the transaction itself, encompassing stringent Anti-Money Laundering measures. We detail the necessary precautions and due diligence steps to shield your business from the risks associated with illicit financial activities.

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