RBI s stricter KYC rules may
slow merchant on boarding 90%
The
Reserve Bank of India s (RBI) draft norms around stricter Know Your Customer
(KYC) rules for payment aggregators could slow the onboarding of online
merchants by as much as 90%, industry insiders said.
The
new rules will be applicable to existing players across online payment
platforms, such as Razorpay, Cashfree, and PayU, card payment companies, such
as Pine Labs, Innoviti Payments, and MSwipe, and QR code deployers, such as
PhonePe, BharatPe and Google Pay.
For
existing players, they will have to engage in a re-KYC exercise on existing
merchants, and for onboarding new merchants, a bank-grade KYC has been
suggested by the regulator.
One
physical KYC can cost as much as Rs 400-500 depending on many factors, even if
we are talking about 10 lakh merchants for a specific service provider, we
could be looking at around Rs 40 to 50 crore of instant cost impact, said a
top executive at a large payment firm, on the condition of anonymity.
CPV,
or contact point verification, is a part of enhanced due diligence the
regulator has suggested for payment players, which means physical visits will
be required at merchant outlets for verification.
It
could push up operational costs by three to four times for these digital
payment companies, as per industry estimates. The time taken to onboard new
merchants could increase to a few weeks-from a few hours to a couple of days
currently.
The
large players in the industry could be signing up around 2,000 to 4,000
merchants on a daily basis for online payments, but given the current capacity
(going by the draft rules) only 10% of the sign up applications can be
completed on time, there is a chance that the remaining 90% will drop off, the
executive quoted above said.
Impact on small
sellers
Another
industry executive said that small sellers who use platforms like Instagram or
Facebook to sell products like pickles, apparel, jewellery and such might find
the onboarding process too demanding.
They
might go back to just asking their customers to do bank transfers or pay via
UPI, some might also switch to cash payments, the executive said.
This
could be a major lost opportunity for payment aggregators, who have relied on
new generation direct to consumer brands for growth in merchandise value. It
could also deprive these brands of value added services like banking, credit on
top of payments from these payment aggregators. Players like Cashfree, PayU,
Razorpay have grown their business on top of these very internet sellers.
The
RBI has also suggested stopping an industry practice of direct settlement of
funds from the merchant escrow account to vendors. This could disrupt business
policies of small marketplaces which typically do not open escrow or
pass-through accounts with banks. They relied on payment aggregators for this
service.
This
service was used for platforms to deduct a small commission out of a sale
process and settle the remaining funds directly into their vendor accounts,
going forward this stops, the executive quoted above said.
Investment in
risk assessment
Payment
aggregators relied on light touch KYC of their merchants since the bank
accounts were already KYC-ed. But now the RBI wants these intermediaries to
undertake their own due diligence too.
This
means these companies will have to invest in setting up their own risk
management systems, which are expensive. And they will also have to monitor
these merchants on an ongoing basis.
Large
firms will anyway do it, they have the financial strength to invest, but
smaller payment firms will be impacted by this and many might move out of the
business, said a founder of a mid scale payments startup.
Another
section of the industry believes that it will create a level playing field for
all players. A senior banker in the know said that QR code deployers were
onboarding merchants hardly with any checks, now all that stops.
From
online players to hardware terminal deployers to QR code deployers, everyone
comes under the regulatory ambit, this was needed since payment companies deal
in public money, this will help organise the sector in the long run, the
banker said.
Ankit
Ratan, cofounder, Signzy, said that the regulator wants players to implement
mechanisms to monitor transaction activity of merchants.
In
today s day and age, superior AI-led technologies are in place that offer 24 by
7 transaction monitoring for all digital payments and can help PAs strengthen
the merchant onboarding process, Ratan said.
www.economictimes.indiatimes.com
dt. 18.04.2024