16 February 2023

Amazon, Google get RBI nod to be payment aggregators, Paytm application returned. What does this mean?

GS-3: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

The Reserve Bank of India (RBI) has granted in-principle approval to 32 firms, including Amazon and Google, to operate as online payment aggregators. This marks the first time that the RBI has released a full list of entities to which it has granted payment aggregator licences, as well as those with applications in process or rejected. The list includes Reliance Payment Solutions, a part of Reliance JioInfocomm, and the payments platform of food delivery firm Zomato. The RBI stated that the scrutiny of payment aggregator applications is an ongoing process, and the list will be updated every two weeks for greater transparency.

Payment aggregators

• After the introduction of a framework by the RBI in March 2020, companies can acquire a licenceto become online payment aggregators.

• Such aggregators are permitted to onboard digital merchants and accept payments on their behalf. 

• Only firms approved by the RBI can offer payment services to merchants, and are therefore subject to regulation by the central bank.
• RBI guidelines require companies to meet the "fit and proper" criteria, comply with global payment security standards, and have a minimum net worth of Rs 15 crore in the first year of application, increasing to at least Rs 25 crore by the second year.
• In short, a payment aggregator is a type of service provider that combines multiple online payment options into a single platform for merchants. 
• It enablesmerchants to accept various types of payment transactions, including cash, cheques, online payments from multiple sources, and offline touchpoints such as in-store kiosks, in-field payments, remote link-based payments, and billing counters. 
• By using a payment aggregator, a merchant can accept bank transfers without having to set up a bank-based merchant account directly with the bank. 
• The primary role of payment aggregators is to handle the complex task of integrating with multiple payment providers to create a comprehensive solution for payment acceptance.

Working of Payment aggregator

• The payment aggregator model is distinct from payment gateways, which only handle the technical aspects of online transactions. 
• Payment aggregators process online payments by handling the underwriting process with acquiring banks and processing payments for merchants. 
• The following steps are involved in the process in India:

1. After a customer enters payment details during checkout, the payment gateway tokenizes the details and performs a fraud check.
2. The payment aggregator's acquiring bank sends the customer's information to the card company via a payment processor.
3. The issuing bank, which verifies the details and checks for sufficient funds in the customer's account, sends a denial or approval message to the card network.
4. Based on the status received, the payment gateway notifies the merchant about the transaction status.
5. The acquiring bank requests funds from the issuing bank once the transaction is approved.
6. The payment aggregator settles the funds in the merchant account based on its settlement cycle.

Features of payment aggregators in India

• Simple and quick creation of a merchant/sub-merchant account to start accepting payments from customers
• Implementation of robust payment security measures to detect and prevent fraud; prompt reporting of cybersecurity breaches to DPSS (Department of Payment and Settlement Systems) and CERT-In
• Instant processing of refunds
• Timely settlements, which can be standard or instant depending on the aggregator's policies
• Provision of dedicated merchant support to address any issues or concerns.

Types of payment aggregators in India

• Prior to the early 2000s, payment aggregator services were only offered by banks. However, the emergence of third-party aggregators disrupted the fintech industry with their creative solutions.
• Thus, In India, there are two categories of payment aggregators –

• Bank payment aggregators 

• The setup costs of these payment aggregator types in India are expensive and integration is challenging. 
• Additionally, they do not offer several popular payment options and comprehensive reporting features. 
• Due to the high expenses, bank payment aggregators are not a viable option for small businesses and startups.

• Third-party payment aggregators

• In recent times, third-party payment aggregators have gained popularity among businesses due to their innovative payment solutions.
• These aggregators offer user-friendly features such as a comprehensive dashboard, easy merchant onboarding, and prompt customer support.

Payment aggregator Vs. payment gateway

[Ref- IE]

Fact File

What is Lavani, and why is Maharashtra’s folk dance form in controversy? Lavani is a traditional folk art form that originated in Maharashtra, India.  The word Lavani is derived from ‘lavanya’ meaning beauty.  It involves women dancers wearing nine-yard-long sarees, bright makeup, and ghunghroos, who perform on dholak beats before a live audience on a stage.  Lavani has a long history going back several centuries and gained particular popularity in the Peshwa era in the 18thcentury, where performances were held in front of kings, lords, and tired soldiers resting during breaks in fighting. There are several sub-genres of Lavani, with Shringarik (erotic) being the most popular.  The lyrics of this genre are often teasing, and sensuous dance steps and delicate gestures are employed to convey erotic meaning.  Though Lavani has gained more acceptability among the people over the years, certain taboos continue to surround it. Historically, the audience has been all-male, but in recent years, some women have also begun to attend performances. Lavani gained popularity outside Maharashtra through its use in popular media such as cinema.  Over the past few years, with the rise of social media, short clips of Lavani dances have become very popular. [Ref- IE]