Are marketplaces required to follow RBI norms for BNPL, wallets, and escrow accounts?

In India, online marketplaces and fintech platforms offering services like Buy Now Pay Later (BNPL), digital wallets, and escrow accounts must adhere to the regulatory framework set by the Reserve Bank of India (RBI). These services are integral to the growing digital economy, providing consumers with flexible payment options and streamlined transaction methods. However, to ensure financial stability, transparency, and consumer protection, RBI has set specific norms that these platforms must follow. Understanding these regulations helps platforms avoid legal pitfalls and fosters consumer trust in digital payments.

Key Points on RBI Norms for BNPL, Digital Wallets, and Escrow Accounts

RBI Guidelines for BNPL Services

• Registration and Licensing: BNPL providers must be registered as Non-Banking Financial Companies (NBFCs) or partner with NBFCs that are registered with the RBI. This ensures that these services are governed under the same regulations as other financial products.
• Credit Risk Management: BNPL providers must assess the creditworthiness of consumers before offering services. The RBI mandates the use of proper credit assessment systems to ensure responsible lending practices and avoid over-indebtedness.
• Disclosure Requirements: The terms of repayment, interest rates, and any associated fees must be clearly disclosed to consumers at the time of offering BNPL services. Full transparency regarding these terms helps protect consumers from hidden charges and unexpected costs.
• Interest Rates and Fees: The RBI places restrictions on the interest rates and fees that BNPL providers can charge. These must align with the guidelines set for similar credit products like personal loans or credit cards.

RBI Norms for Digital Wallets

• KYC Requirements: Digital wallet providers must ensure compliance with Know Your Customer (KYC) norms to verify the identity of users. This is a critical step in preventing money laundering and fraud. Consumers need to provide valid identification documents, and wallets must be registered with the RBI to operate legally.
• Transaction Limits: The RBI has imposed transaction limits on digital wallets depending on the KYC status of the user. Non-KYC wallets typically have a limit of ₹10,000 per month, while fully KYC-compliant wallets can facilitate higher limits.
• Fund Safeguarding: Providers must ensure that the funds in digital wallets are safe and segregated from operational funds, ensuring consumer protection in case of financial distress or operational failure. The RBI mandates that wallet providers keep funds in escrow accounts or with a regulated bank to safeguard consumer balances.
• Interoperability and Merchant Onboarding: Digital wallet providers must work towards enabling interoperability with other payment systems and should not restrict consumers from using wallets across various merchant platforms. Additionally, they must ensure that merchants are onboarded in compliance with RBI regulations.

Escrow Accounts and Compliance

• Regulated Entities: Marketplaces must partner with banks or other RBI-approved financial institutions to manage escrow accounts. The funds in these accounts should be held in trust and released only upon the completion of the transaction or the fulfillment of specific contractual obligations.
• Transparency in Fund Handling: The marketplace is required to ensure that all escrow account transactions are transparent, with detailed records maintained for every transfer, payment, or refund processed through the account. This helps in protecting both buyers and sellers.
• Dispute Resolution Mechanism: If a dispute arises regarding the release of escrow funds, the marketplace must provide a clear dispute resolution process. This ensures that the money is returned to the rightful party if the transaction is not completed as agreed upon.

Consumer Protection and Financial Stability

• Fraud Prevention: Platforms are required to implement robust fraud detection and prevention measures. This includes transaction monitoring, anomaly detection, and secure payment gateways to prevent unauthorized access to user funds.
• Dispute Resolution: In case of payment failures, refunds, or disputes, the marketplace must have a clear and efficient mechanism for resolving complaints. Consumer protection laws mandate that consumers are compensated for any fraudulent or failed transactions.
• Data Privacy: Digital wallets and BNPL providers are also required to comply with data protection laws, such as the Personal Data Protection Bill in India, ensuring that consumers' financial data is securely handled.

Role of Payment Aggregators

• Regulation by RBI: The RBI has introduced specific regulations for payment aggregators to ensure that they comply with KYC, AML (Anti-Money Laundering), and other financial regulations. They must register with the RBI and adhere to all the applicable guidelines for handling transactions, refunds, and merchant payments.
• Merchant Onboarding and Compliance: Payment aggregators must ensure that merchants they onboard comply with RBI norms, including the proper handling of consumer funds, transparent pricing, and dispute resolution.

Steps Marketplaces Should Take to Comply with RBI Norms

• Ensure Proper Registration and Licensing: Marketplaces offering BNPL, digital wallets, or escrow accounts must ensure they are properly registered with the RBI or partner with RBI-licensed entities. This includes registering as a payment aggregator, fintech company, or partnering with a licensed NBFC.
• Implement Robust KYC and AML Systems: All platforms must ensure that they have strong KYC processes in place for verifying the identity of users, especially for digital wallets and BNPL services. They must also implement systems to detect and prevent money laundering.
• Adhere to Transaction and Limit Guidelines: Marketplaces offering digital wallets should strictly adhere to the transaction limits set by the RBI for both KYC-compliant and non-compliant wallets.
• Provide Transparent Terms for BNPL Services: For BNPL offerings, the terms of service, including repayment schedules, interest rates, and any fees, should be clearly disclosed to consumers before they opt for the service.
• Partner with Licensed Financial Institutions: For escrow services, marketplaces must partner with RBI-approved banks or financial institutions to manage the escrow accounts, ensuring that the funds are handled securely and in compliance with regulations.

Example

Suppose a new online marketplace, ShopEase, offers BNPL services for its customers but does not comply with RBI’s norms for assessing creditworthiness or transparency in terms of interest rates. A consumer, Rina, uses the BNPL option to purchase a laptop but faces unexpected interest charges and payment issues.

Steps ShopEase Should Take:

• Review Compliance: ShopEase should review its BNPL services and ensure it complies with RBI guidelines, including proper credit checks and transparent fee disclosure.
• Partner with an NBFC: ShopEase should collaborate with an RBI-licensed NBFC to offer BNPL services and ensure consumer protection.
• Fix Discrepancies: If Rina’s issue is legitimate, ShopEase must promptly resolve her complaint and issue refunds or adjustments if necessary, following the RBI's consumer protection norms.