Report Suggests RBI Will Soon Introduce License Framework For 'Point Of Sale' Players

The Reserve Bank of India (RBI) is poised to introduce guidelines for licensing in the point of sales (POS) business, marking a new category within financial services, according to a report from a media house.

The objective of this framework is to ensure fairness in operations and establish parity between online and offline payment operators, as outlined by sources in the report. The move seeks to bolster regulation within the offline payments sector. While banks and non-banking financial companies (NBFCs) currently active in the POS domain will remain unaffected, third-party operators like BharatPe, MSwipe, Paytm and PineLabs are anticipated to require licenses to continue operations.

A surge in third-party operators within the offline payments sector has spurred the necessity for regulatory measures, as highlighted in the report. Additionally, banks' adoption of third-party POS for operational ease has contributed to this momentum.

These operators handle daily average balances of Rs 400 crore, compared to Rs 1,000 crore in the online space, underscoring the need for regulatory alignment before the offline market expands further.

Similar to payment aggregator licenses, POS operators may need to fulfill specific criteria, including a minimum net worth of Rs 25 crore and compliance with RBI's fit and proper conditions.

The RBI has yet to respond to inquiries on the matter, the report notes.

Challenges and Concerns The call for a licensing framework emanates from three primary concerns within the industry. Firstly, the proliferation of cash loans on credit cards has resulted in large, one time swipes at POS terminals. There are suspicions that certain merchants may offer cash in exchange for such transactions, raising queries about KYC procedures and regulatory oversight.

Secondly, disparities in data storage practices among POS operators pose security risks. Inconsistent data retention periods, ranging from 90 days to over a year, underscore the need for standardization aligned with security protocols.

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

While no such cases have been reported thus far, it remains a concern.

Should the proposed licenses become mandatory, it remains uncertain whether players like Paytm and BharatPe, awaiting the central bank's approval for payment aggregator services, will be allowed to operate in the offline POS segment.