RBI keeping a close watch on newly-licensed payment firms
The Reserve Bank of India has tightened its scrutiny of newly licensed
payment aggregators
with regular audits and close inspection of the procedures they follow, according to industry executives.
After the regulator brought digital payments within its ambit, it is also trying to ensure that payment firms do not have any loose ends through which fraudsters can get access to the wider banking ecosystem.
'One of the things the RBI wants to know is if these merchants are genuine, if they are actual online businesses,' said a chief executive officer of a payments firm, requesting not to be named. 'The idea is to keep the ecosystem free from fraudulent merchants.'
KYC
(know your customer) is one important aspect that the RBI is looking at very closely, the people cited earlier said. There is a draft proposal that the regulator had circulated regarding making full KYC mandatory for every merchant being onboarded by payment aggregators. The circular is yet to be implemented.
ETtech
Live Events
The executive cited earlier further said RBI officials are also calling up field staff to check if KYC procedures laid out by the company are being followed by agents on the ground.
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Payout is an important area of concern for the payments industry, people said. Payouts are processed when any business instead of accepting payments wants to pay either its vendors, cashbacks to customers or process ecommerce returns.
'The question the industry is pondering over is how should these payouts be processed, if they need to be moved via the settlement accounts only,' the executive cited earlier said.
The regulator has given out licences to some 54 companies which are allowed to operate as online payment processing entities. Now it wants to ensure that these companies are strictly abiding by norms with regards to supporting payments for online merchants.
'We have always been scrutinised by banks, but bank audits were mostly procedural, something which we were used to, but now
RBI audits
have become much more stringent and they want to ensure that the rules are being followed across the organisation,' a senior executive at a payments firm said.
The RBI is also pushing these fintechs, which in most cases are venture-funded startups, to have strict board-approved policies followed by the management teams.
'We have added professional independent directors to the board now and have changed many approval systems in a way that it abides by regulatory protocol. There is more hygiene that the RBI is trying to bring in,' said another chief executive officer at a Mumbai-based digital payments major.
PhonePe
recently appointed accomplished banker Zarin Daruwala to its board as an independent director. Earlier this year, PayU had appointed Renu Sud Karnad, former managing director at HDFC, as the chairperson.
While on a monthly basis, there is data sharing with the regulator, officials also turn up at their offices on short notice, industry insiders said.
'We had an instance where officials informed us on Friday evening that they will be coming on Monday,' said the executive cited above.
Overall, the message that the RBI wants to give to this emerging sector is that they need to put systems in place and stick to them.
A founder at a payments firm also pointed out that the RBI is not expecting these firms who are new to the regulatory regime to already have everything in place. But it wants founders to be honest about the progress and remain transparent about it.
As the Indian digital payments ecosystem grows, the RBI is also trying to ensure that these firms closely follow the best practices of the financial services industry. Previously, players such as Razorpay and Cashfree had faced regulatory ire when their customer onboarding was completely brought to a stop. Paytm needed to get government clearance regarding their international investments. PayU needed to get its Indian corporate entity to keep the RBI satisfied. The Naspers-backed company managed to get the final PA licence only in May 2025.
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