RBI to Introduce Licensing Framework for Point-of-Sale Players

The Reserve Bank of India (RBI) is set to roll out a comprehensive licensing framework for point-of-sale (POS) operators, a move that is poised to impact major players in the industry. Let's delve into the details:

Background

The rapid growth of third-party operators in the offline payments sector has underscored the need for regulatory measures. While banks and non-banking financial companies (NBFCs) currently engaged in the POS business won't be affected, third-party operators will need to obtain licenses to continue their operations¹.

Key Points

1. Objective: The primary objective of this licensing framework is to ensure operational harmony and level the playing field between online and offline payment operators.

2. Major Players: The development will significantly impact major players in the POS space, including well-known names such as Pine Labs, MSwipe, Paytm, and BharatPe.

3. Operational Balance: By introducing licensing norms, the RBI aims to create a balanced environment for both online and offline payment operators. Regulated entities like banks and NBFCs will continue their POS operations without disruption, while third-party operators will need to comply with the new licensing requirements.

4. Offline vs. Online: Third-party offline payment operators currently maintain daily average balances of Rs 400 crore, contrasting with Rs 1,000 crore in the online space. The licensing regime seeks to address this disparity and ensure uniformity across the industry².

5. Specific Norms: Similar to payment aggregator licenses, POS operators may be subject to specific norms. These could include a minimum net worth requirement of Rs 25 crore and adherence to the RBI's fit and proper conditions.

6. Eligibility Concerns: The move raises questions about the eligibility of players like BharatPe and Paytm, who are awaiting RBI approval for payment aggregator services. Their ability to operate in the offline POS segment will depend on the licensing requirements².

Key Concerns Addressed

1. Cash Loans on Credit Cards: The informal sector has witnessed a notable increase in cash loans on credit cards, often facilitated by merchants handling POS terminals. The licensing framework aims to address potential cash transactions and enhance oversight.

2. Data Storage Practices: POS operators' data storage practices vary, governed by agreements with issuing banks. Harmonizing these practices is crucial for security reasons.

3. Fund Management: Settlement with merchants sometimes involves a day's lag, posing risks associated with unregulated entities stocking cash. The proposed licensing regime aims to enhance regulatory oversight in this area².

Conclusion

The RBI's move to introduce a licensing framework for POS players underscores the importance of ensuring a secure and level playing field for all participants in the financial services sector. By preemptively addressing concerns related to cash loans, data storage, and fund management, the RBI aims to foster a robust and transparent payments ecosystem.