E-commerce transactions trigger complex automated processes that involve middlemen like banks and payment processors. In addition, technological advances in smartphones and e-wallets, shifting purchase patterns, and demand for cross-border, multi-currency electronic payments have made things even more complex.
New technologies are contributing to simplify business experiences with the involvement of mobile payments, e-wallets, and contactless cards etc. However, providers are under constant pressure to provide payment methods beyond traditional banking models, and to facilitate a safe payment environment that can enable any purchase. Up and down the transaction route, these expectations provide technical difficulties for merchants, processors, and users.
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Common issues of online payments
Fraud
With the advancement of the internet age and the online payment processing system, fraudsters are getting many opportunities. Though payment solution providers are implementing and improving the techniques to keep the data safe, fraudsters are constantly finding loopholes and eventually breaching security. Precisely, the most common types of fraud that take place are data theft, phishing, and charge back.
Data theft is a fraud practice where hackers steal sensitive card details. The stolen data can be used for committing payment frauds. Phishing is the practice of sending phoney emails or messages purporting to be from trustworthy and legitimate businesses in order to acquire a person’s personal data, such as usernames, passwords, credit card numbers, etc.
A chargeback is a reimbursement to a customer. It is also known as friendly fraud. This is basically a practice of ordering items/services online and then initiating a chargeback claiming that the purchase was made fraudulently.
Multi-currency and payment methods
Global e-commerce involves accepting a variety of payment methods and currencies. E-wallet payment processing, mobile payment processing, and of course acceptance of international credit/debit cards help online merchants compete in global markets by allowing their customers to pay in their native currencies and method of choice. New bank accounts, new business entities, and new regulatory hurdles in each national market are a result of multi-currency, cross-border transactions for merchants.
Technical integration
Most business owners don’t have the required technical knowledge which is needed to integrate payment solutions with the business website. They are unaware of technologies like API integration, drag and drop or developer options. Hence, the integration process becomes difficult and time-consuming for them. For many small business owners, integration can be more expensive due to the number of rules and complexity of the system. Integration should be simple, understandable, and accept all kinds of payment options.
Regulatory bodies governing electronic payments in India
Reserve Bank of India
The Reserve Bank of India (RBI) is the primary regulator for electronic payments in India. The increased use of electronic payment systems led to a full-fledged regulation system as opposed to the prior general approach. The Reserve bank of India changes its policies and regulations according to the changes and fluctuations in the market.
Banking Ombudsman Scheme
The banking ombudsman was appointed on January 31, 2019, as per the approval of the RBI to take care of matters relating to unauthorized money transfers, frauds, etc. which were a part of any digital transaction. This approach was much easier for customers in their time of need.
Payment And Settlements Systems Act, 2007
The Payment and Settlements Systems Act (PSS), 2007 is an Act that governs electronic payment systems in India. The Reserve Bank of India (RBI) gets the power to look into matters related to electronic payment systems and deals with its settling as well as the legalities under this act. The Act also specifies that, other than the RBI, no person can operate a payment system except with due authorization issued by the RBI. Thus the Act gives formal oversight powers over overall payment and settlement systems with the RBI and provides for netting and settlement finality.
The concept of regularities was introduced by The Reserve Bank of India in order to safeguard the interests of the customers while making a payment or a transaction through the mode of electronic payments. The RBI published a regulation in 2009 that addressed setting up and managing accounts for electronic payments. This method has the involvement of an intermediary, which is why these regulations were termed as the intermediary regulation.
The regulation contented that for any entity to become a payment system, mandatory prior approval from the RBI is required. Some payment systems received exclusions because they settle their accounts using a nodal account and are not involved in the settlement of any transaction between a customer and businesspeople.
The Payment and Settlements Act was issued under this Intermediary regulation only. The Act deals with the Appointment of the RBI as the prime authority that regulates payment and settlement systems. It makes it compulsory for the operation of any payment system to obtain prior RBI authorization. It warrants the RBI to regulate and supervise payment systems by determining standards and calling for information, regular reports, documents, etc. It warrants the RBI to audit and conduct on- and off-site inspections of the payment systems. It also warrants the RBI to issue directives; and Provides for netting and settlement to be final and irrevocable.
Recent developments
Electronic payments are gaining popularity very rapidly. With this increase in popularity in demand, the need for proper regulation is a definite one. This is also because many people are finding loopholes and using these forms of payments for different types of fraud etc.
The Reserve Bank of India (RBI) issued new guidelines as part of the “Vision Statement on payment and settlements systems in India 2019-21” where the main objective was to make stricter guidelines that are up to date to match with the development of these electronic payments systems.
As part of this objective, a discussion paper was also released by the Reserve Bank of India (RBI) seeking suggestions from the public on how the guidelines should be formulated so as to be on par with the developments that have been taking place each day.
“Guidelines on Payment Aggregators and Gateways” was issued by The Reserve Bank of India in accordance with these in March 2020 and these guidelines came into effect in April 2021.
Summarized contents of the new guidelines issued by the RBI
- Authorization– The Payment aggregators who are not a bank, require prior approval from the RBI. Also, non-banks who have become payment aggregators before these guidelines were issued will have to apply for authorization before 30th July 2021 and are allowed to work without any disturbance till the approval is given by the RBI.
- Capital requirements– As per the new guidelines of the RBI, the starting net worth of the payment aggregators should be 15 crores at the initial stages. This will continue to increase to 25 crores which have to be maintained.
- Money Laundering– The Prevention of Money Laundering Act, 2002 is applicable to payment aggregators as per the new guidelines.
- Governing body- According to the guidelines, the RBI is supposed to supervise and keep a check on any change that occurs in ownership, policies, etc in the payment aggregators.
- Dispute Settlement– According to this new guideline, the payment aggregators have to ensure that there is a proper mechanism for dispute resolution.
- Merchants– In order to ensure genuinity and safety, all the payment aggregators are obligated to do a thorough background check on the merchants before they are made to do any business. This is to ensure that they not entering into a business with the intent to fraud any individual.
- Management of Risk– A Board is supposed to be appointed as per this guideline to ensure that there is minimal risk and it is the duty of the Board to make sure that the guidelines of the RBI are followed in the prescribed manner.
