Why Payment Gateways Stopped Onboarding New Merchants in India

In December 2022, the Reserve Bank of India (RBI) directed certain payment aggregators (PAs) to temporarily stop onboarding new merchants. This decision was primarily driven by regulatory and compliance considerations.

There are a few reasons why the RBI may have taken this step.

• Concerns about fraud and money laundering: PAs play a critical role in the Indian fintech ecosystem, enabling merchants to accept online payments from customers. However, there have been concerns that PAs can be misused for fraudulent activities, such as money laundering and terrorist financing. The RBI may have wanted to impose stricter regulations on PAs to mitigate these risks.
• Need to improve transparency and governance: The RBI may have also wanted to improve transparency and governance in the PA industry. In recent years, there have been a number of reports of PAs failing to comply with regulatory requirements. The RBI may have wanted to use the onboarding pause to give these PAs a chance to improve their compliance standards.
• Ensuring the stability of the financial system: PAs hold large sums of merchant funds in their escrow accounts. The RBI may have wanted to ensure that these funds are adequately protected and that PAs have robust risk management systems in place.

The RBI’s decision to stop onboarding new merchants has had a significant impact on the Indian fintech industry. Many PAs have been forced to lay off employees and scale back their operations. Some PAs have even been forced to shut down altogether.

The decision has also had a negative impact on merchants. Many merchants are now struggling to find a payment gateway that can help them accept online payments. This has made it difficult for them to grow their businesses and compete in the digital economy.

The RBI has not yet provided a timeline for when it will resume onboarding new merchants. However, it has said that it is working with PAs to improve their compliance standards and risk management systems. Once the RBI is satisfied that PAs have met its requirements, it is expected to lift the onboarding pause.

How the Payment Gateway Onboarding Pause Has Impacted Merchants

The payment gateway onboarding pause has had a significant impact on merchants in India. Many merchants are now struggling to find a payment gateway that can help them accept online payments. This has made it difficult for them to grow their businesses and compete in the digital economy.

Some of the specific ways in which merchants have been impacted by the onboarding pause include:

• Difficulty in finding a new payment gateway: Many merchants are now struggling to find a new payment gateway to partner with. This is because the onboarding pause has reduced the number of PAs that are available to merchants.
• Higher fees and charges: Merchants who are able to find a new payment gateway may have to pay higher fees and charges. This is because PAs are now facing increased regulatory costs.
• Reduced customer satisfaction: Merchants who are unable to accept online payments may experience a decrease in customer satisfaction. This is because customers are increasingly expecting to be able to pay for goods and services online.

What Merchants Can Do to Cope with the Payment Gateway Onboarding Pause

Merchants who are struggling to cope with the payment gateway onboarding pause can take the following steps:

• Explore alternative payment methods: Merchants can explore alternative payment methods, such as UPI, wallets, and cash on delivery. This will help them to continue accepting payments from customers, even if they are unable to find a payment gateway partner.
• Negotiate with existing payment gateways: Merchants who have existing relationships with payment gateways can try to negotiate better fees and charges. This may be possible, given that PAs are now facing increased competition.
• Improve their risk management systems: Merchants can improve their risk management systems to make themselves more attractive to PAs. This may involve implementing fraud detection and prevention measures, as well as improving their KYC and AML procedures.

Conclusion

The payment gateway onboarding pause has had a significant impact on the Indian fintech industry and on merchants. However, there are steps that merchants can take to cope with the pause and to continue growing their businesses.

Merchants should explore alternative payment methods, negotiate with existing payment gateways, and improve their risk management systems. Merchants should also stay updated on the latest developments in the Indian fintech industry and be prepared to adapt their businesses as needed.

References

Here is a supporting artifact link for the article:

• RBI’s directive to certain PAs to temporarily stop onboarding new merchants
• Razorpay Pauses Onboarding New Merchants Following RBI Order (inc42.com)

This directive was issued by the RBI on December 23, 2022. It states that certain PAs must temporarily stop onboarding new merchants until they have complied with all regulatory requirements.

I hope this is helpful!