RBI tightens domestic transfer rules: KYC must for walk- in money transfer

Remitting bank shall obtain and keep a record of the name and address of beneficiary, according to new norms

The Reserve Bank of India (RBI) has tightened regulations for cash payout service at banks, requiring lenders to maintain records of recipients. The new norms start November 1.

The RBI's measures aim to counter the misuse of banking channels for online fraud that trick customers into transferring funds to third-party accounts, which are then withdrawn by so-called money mules.

New guidelines

In a circular issued on July 24, the RBI outlined the revised requirements for both cash pay-in and cash payout services. The changes mandate that remitting banks must obtain and maintain a record of the beneficiary's name and address for cash payout services. For cash pay-in services, banks and their business correspondents are required to register the remitter using a verified mobile number and a self-certified ‘Officially Valid Document’ (OVD), according to KYC guidelines established in 2016.

Additionally, every transaction initiated by a remitter will require validation through an Additional Factor of Authentication (AFA). This step is intended to provide an extra layer of security, making it more difficult for fraudsters to exploit the system.

The RBI has also asked banks and business correspondents to conform to the provisions of the Income Tax Act and include remitter details as part of the IMPS/NEFT transaction message, identifying the transaction as a cash based remittance.

According to the circular, guidelines on card-to-card transfer are excluded from the purview of the DMT framework and will be governed under the guidelines / approvals granted for such instruments.

The rules to regulate the domestic money transfer segment were introduced in 2011. Since then, there has been a significant increase in the availability of banking outlets, developments in payment systems, and ease in fulfilling KYC requirements. Now users have multiple digital options for funds transfer, the regulator said.

"The new guidelines reaffirm the need for domestic money transfer, especially for Bharat customers, to complement digital payments in today's era. The new KYC requirements are consistent with RBI's stance on tighter KYC to prevent fraud and misuse. We also believe these guidelines will help standardise and elevate the customer experience across various touchpoints," said Yashwant Lodha, Co-founder at PayNearby.

"By mandating verified cell phone numbers, self-certified documents, and additional authentication factors, it ensures safer and secure transactions at the money transfer touch points. Additionally, the inclusion of remitter details in transaction messages and compliance with the Income Tax Act further boosts transparency and trust among both the parties," he said.

"Technological advancements have provided multiple options for money transfers; however, identity verification of the parties involved in online transactions has become paramount. By registering the remitter based on a verified cell phone number and a self-certified ‘Officially Valid Document (OVD), banks can ensure the authentication of users and confirm they are who they claim to be," said Ankit Ratan, Co-Founder & CEO at Signzy.