The Reserve Bank of India (RBI) is gearing up to roll out new guidelines for granting licenses in the point-of-sale (POS) industry, creating a distinct category in financial services, according to a report by Hindu Businessline.

This move aims to strengthen regulation in offline payments, ensuring fairness and creating a balanced field between online and offline payment providers, sources cited in the report revealed.

Established entities like banks and non-banking financial companies (NBFCs) currently engaged in POS operations will remain unaffected. However, third-party operators such as BharatPe, MSwipe, Paytm, and PineLabs are expected to feel the impact and will need to secure licenses to continue their services.

Market Dynamics Addressed

The surge in third-party operators within offline payments has prompted the necessity for regulatory actions, the report highlighted. Banks have increasingly relied on third-party POS solutions for smoother business operations.

These operators handle daily balances averaging ₹400 crore, compared to ₹1,000 crore in the online realm. An industry insider emphasized the importance of implementing regulatory changes before the offline market expands further.

Similar to requirements for payment aggregator licenses, POS operators may need to meet specific criteria, including a minimum net worth of ₹25 crore and compliance with RBI regulations.

Challenges and Issues

The need for a licensing framework stems from three primary concerns within the industry. Firstly, there's a growing trend of cash loans on credit cards, leading to substantial one-time transactions at POS terminals. There are suspicions that certain merchants might be offering cash in exchange for these transactions, raising questions about KYC procedures and regulatory oversight.

Secondly, disparities in data storage practices among POS operators pose security risks. Varying data retention periods, ranging from 90 days to over a year, highlight the necessity for standardization and alignment with security protocols.

Thirdly, concerns loom over fund management by third-party players. Delayed settlements to merchants and the risk of unregulated entities mishandling funds underscore the need for regulatory intervention to mitigate potential risks.

While no such instances have been reported yet, it remains a concern.

The impact on players like Paytm and BharatPe, awaiting approval from the central bank for payment aggregator services, remains uncertain if the proposed licenses become mandatory for offline POS operations.

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