The Reserve Bank of India (RBI) first introduced guidelines to regulate payment aggregator cross-border (PA-CB) entities over a year ago. Since then, just four companies — Cashfree Payments, Amazon Pay, BillDesk, and Adyen India — have received the necessary licences to function within this highly regulated sector. This sharply contrasts with the 41 companies that have been approved to operate as domestic online payment aggregators (PAs).
The relatively small number of licensed players in the cross-border payment sector leads to higher margins, intensifying interest in offering such services. However, obtaining a PA-CB licence is no easy feat. It demands compliance with stringent regulations, including the Foreign Exchange Management Act, a requirement not imposed on domestic online PAs.
“Cross-border PA is a complex area. Some nuances go beyond those of a domestic PA, as the risks and consequences could be higher due to the movement of money between countries,” said Reeju Datta, co-founder of Cashfree Payments.
Cashfree Payments, based in Bengaluru, was the first company to receive a PA-CB licence in July this year. The banking regulator granted approval for its operations within the import and export sectors.
PA-CBs are entities that facilitate cross-border payment transactions for the import and export of permissible goods and services online, according to the RBI’s guidelines.
Entities holding a domestic PA licence may have an edge when applying for a PA-CB licence, as they’ve already demonstrated the necessary compliance during the domestic PA licensing process.
“By virtue of being a domestic PA, the checks and rigor that one goes through prepares one for applying for a PA-CB. Also, if one already has the online PA license, then the chances are that you already have the system and processes in place, that helps while applying for a PA-CB,” Datta added.
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In the meantime, other players in the business-to-business cross-border payments space, who have not yet received their PA-CB licences, continue operating under a regulatory provision that allows them to do so, as long as they applied before April 2024.
“The new regulation for PA-CBs was non-disruptive to existing players. This means that anyone operating under the correct guidelines when the licence was announced could continue their operations, as long as they applied for the licence. For instance, we, as an online payment gateway service provider, were able to continue our operations,” said Movin Jain, co-founder of Skydo, a business-to-business international payments firm.
Skydo applied for a PA-CB licence in March and is still awaiting approval.
Unlike domestic PAs, PA-CBs are required to maintain separate import collection accounts (ICA) and export collection accounts (ECA). Domestic PAs involved in cross-border payments must ensure their escrow accounts are kept distinct from the ICA and ECA.
Industry experts observed that not all domestic banks are willing to offer services for the PA-CB sector, due to the infrastructure needed and the rising interest in this market. As a result, financial technology companies may need to turn to specialised global banks to maintain an ICA or ECA, which could incur premium costs.
“There is a major cost associated with regulation and compliance, but, naturally, all businesses will face this at some point. Compliance in the cross-border space is more difficult and costly — for example, we conduct a video KYC process for every merchant,” Jain from Skydo added.
A PA-CB export licence allows businesses to collect payments from international customers online, while a PA-CB import licence enables foreign businesses to receive payments from individuals in India.
Licence requires additional regulatory rigour to operate in the space