The Reserve Bank of India (RBI) is gearing up to introduce a licensing framework for point-of-sale (POS) operators, a move expected to have significant implications for key players like Pine Labs, MSwipe, Paytm, and BharatPe, according to reports.
The objective is to ensure operational consistency and level the playing field between online and offline payment operators. While existing regulated entities such as banks and NBFCs operating in the POS domain will remain unaffected, third-party operators will be required to obtain licences to continue their operations.
The surge in third-party operators compared to regulated entities in the offline payments sector has underscored the necessity for this licensing regime. These third-party operators handle daily average balances of Rs 400 crore, contrasting with Rs 1,000 crore in the online space.
Regulating market
The move by the RBI aims to proactively enact regulatory changes to address potential issues as the offline market expands. Banks have increasingly favoured third-party POS players over in-house operations due to their business efficiency.
Similar to payment aggregator licenses, POS operators may be subjected to specific norms, including a minimum net worth requirement of Rs 25 crore and meeting the RBI’s fit and proper conditions.
However, if licences become mandatory, it raises questions about the eligibility of players like BharatPe and Paytm, which are awaiting RBI approval for payment aggregator services, to operate in the offline POS segment, according to media sources.
The need for a licensing framework stems from three main concerns. Firstly, there is a notable increase in cash loans on credit cards within the informal sector, suggesting potential cash transactions facilitated by merchants handling the POS. While third-party operators are responsible for KYC, the system lacks foolproof mechanisms to detect and address deficiencies.
The rationale
Secondly, the data storage practices of POS transactions vary among operators, governed by agreements between issuing banks and third-party operators. Harmonising these practices is crucial for security reasons. Lastly, concerns arise regarding fund management by third-party players. Settlement with merchants often involves a day’s lag, posing risks associated with unregulated entities stocking cash.
Despite no major lapses thus far, the exponential growth of the business in recent years has brought fund management to the forefront of regulatory concerns.
The proposed licensing regime for POS operators by the RBI aims to enhance regulatory oversight and address concerns regarding cash loans, data storage practices, and fund management in the offline payments ecosystem. This move underscores the importance of ensuring a secure and level playing field for all players in the financial services sector.
