Fintech firms Razorpay, Cashfree can't onboard new merchants for now

The Reserve Bank of India (RBI) has asked fintech major Razorpay to temporarily pause onboarding of new merchants as part of the process to get the final approval for a payment aggregator/ payment gateway (PA/PG) licence, for which they have already received an in-principle approval from the central bank, sources said.

Multiple reports suggest that other fintech firms such as Cashfree, who received in-principle approvals from the RBI for a PA/PG licence, have also been asked to do the same.

As part of the process to get the final approval, there are certain changes and upgrades the company is supposed to do, which the company is in the process of doing. Essentially, the RBI wants the company not to onboard any new merchants on the old system, said a source. The company has to migrate from a nodal account to an escrow account, according to the new PA/PG guidelines. 

It has to file a report to the RBI on the completion of migration to the new system after which it can onboard new merchants. This is not a punitive action or penalty against the company. This is more of a procedural direction from the RBI, the source quoted above said. 

Razorpay said it was a temporary move and will not have any impact on its existing business operations and current merchants.

“... for the final authorisation of our PA/PG licence — for which we received in-principle approval from the RBI in July — we are required to share additional details with the RBI to aid in the final licence process. The RBI has suggested that we temporarily withhold onboarding new online merchants till such details are submitted. As a responsible corporate that operates under the ambit of the RBI, Razorpay has abided by the regulatory requirement,” a Razorpay spokesperson said.

“We would like to emphasise that this has no impact on Razorpay’s existing business operations and current merchants. Also, we continue to onboard new businesses on other Razorpay services — RazorpayX, Corporate Card, and offline payments via Ezetap. Razorpay’s operations are fully compliant with all regulatory guidelines and the company continues to be in touch with the RBI for the next steps,” the Razorpay spokesperson added.

Razorpay received in-principle approval from the RBI for a PA licence in July. Several payment providers such as Pine Labs, Stripe, 1Pay, Innoviti Payments, MSwipe, and a few others have received in-principle nod from the RBI for a PA licence. More players are also expected to get the central bank’s nod for a PA licence.

In 2020, the RBI issued guidelines that said only firms approved by the regulator could acquire and offer payment services to merchants. While banks do not need separate approvals, non-bank entities offering payment aggregator services had to apply for authorisation to the RBI by June 2021, which was later extended. The central bank had, however, allowed them to continue their operations till they received communication from the regulator regarding the fate of their application. The RBI allowed another window to PAs existing as of March 2020 to apply to the central bank for a licence. PAs were asked to apply for a licence by September 30, 2022.

The central bank had specified the criteria entities have to fulfil to secure such a licence and a number of firms have seen their applications being rejected while many have also got the nod from the RBI. According to some reports, about 180 applications were made to the RBI, among which quite a few have been rejected while others received the nod. 

PAs are entities that facilitate e-commerce sites and merchants to accept various payment instruments from the customers for completion of their payment obligations without the need for merchants to create a separate payment integration system of their own. 

WHY THE PAUSE 

• RBI’s move is linked to payment aggregator licence nCompanies are supposed to make certain changes and upgrades 
• In 2020, RBI issues guidelines that said only firms approved by the regulator could acquire and offer payment services 
• While banks did not need separate approvals, non-bank entities had to apply for authorisation by June 2021. This date was later extended 
• RBI, however, allowed the firms to continue their operations