“We have already had around three rounds of queries after our suspicious activity report (SAR) was done,” said the founder of a payment aggregator which has applied for a licence. “We were probed on multiple fronts by the regulator…”
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A senior executive of a private sector bank pointed out that the RBI is looking closely at the operational aspect of these businesses, access controls to data and audit trail of every activity.
An email query sent to the RBI remained unanswered.
In the payments business, access to sensitive data needs to be monitored and many payment companies do not have such access controls, or do not maintain proper audit checks. The regulator wants fintechs to be serious about these aspects of business before they are issued a licence.
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The RBI is looking at the shareholding structure of the applicants too. Two founders of major payment companies told ET that the regulator wants to understand the source of funds for every fintech company that has applied.
ETtechFor any investor with a shareholding of more than 10%, the RBI is conducting additional due diligence to find out the ultimate beneficial ownership.
“The RBI is closely looking at the limited partners of the venture investors who back the applicants, and also looking at FATF (Financial Action Task Force) compliance,” said one of the founders cited earlier. FATF is a global financial watchdog set up by the G7.
The RBI is also taking a hard look at the existing infrastructure being run by the company, which is essential to keep the payment flows safe and protect customer data.
The recent case of Mumbai-based payments provider Safexpay, which lost around Rs 25 crore to fraud attacks, shows how important it is to have internal checks and controls and ensure that employees or fraudsters cannot siphon off funds from the middle of a transaction.
In the Safexpay matter, some ex-employees are alleged to have siphoned off funds by creating bogus merchant accounts.
“Payments is a very crucial business and players in this space need to be thoroughly audited and checked before being given the licence,” he said. “No wonder the regulator is taking its own time.”
The founder of another fintech startup that has applied for a licence said the regulator might want to restrict the number of applicants who get the nod.
As of now, more than 80 applicants are at various stages of approval from the RBI. Of these, 36 have already received in-principle approval. Even among those who have received approval, some 20 companies are yet to receive permission to start operations.
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“The RBI might want to restrict the number of licence applications to less than 50, while there is no clarity on the number yet, but it might not give away so many PA licences,” said the founder quoted earlier.
The going has been tough for even the large payment companies which dominate the online payment landscape. Razorpay, PayU, Cashfree and Paytm are among the players who are banned from adding new merchants. This is hurting their new business.
On Monday, Razorpay had told ET that it is making a change in its go-to-market strategy for customers.
Razorpay and Cashfree are among the companies that had received in-principle approval in early 2023.
