Razorpay and Cashfree Payments have been instructed by the Reserve Bank of India (RBI) to halt the onboarding of new merchants, as per several Indian media reports. This halt on onboarding comes as the fintech firms await their payment aggregator licenses.
Furthermore reports suggested that Stripe, which is dual-headquartered in San Francisco and Dublin, has also been asked to set up an escrow account within India. Stripe has denied that. “We look forward to continuing to operate in India and help Indian businesses process their payments, support their subscription business models, and combat fraud,” the startup said. Pine Labs too was reportedly among those to have received such notices. But in a statement, the company has denied the same. “Our Plural Payment gateway continue to remain compliant as per the PA /PG guidelines and we are continuing to onboard online merchant. We processed nearly $10Bn of annualised online volumes”, said a Pine Labs spokesperson.
For now, it is unclear why the RBI chose to take this step, but according to sources, the prohibition on onboarding new merchants is not a punitive one. For now, it will remain in effect until the three fintech players submit their audit reports to the RBI. These reports need to show that they have complied with its rules and regulations for the payment aggregator/payment gateway (PA/PG) licenses. Razorpay confirmed that it has received the notice from the country’s apex bank and cased the onboarding of new merchants. According to sources, is likely to submit its audit report as early as next week, and if the others follow its example, then the freeze on onboarding new merchants can be lifted in a couple of weeks.
This move by the RBI is part of a bigger picture – giving the payment aggregator licenses to these fintech firms. It had given an initial, in-principle approval to Razorpay, Stripe, and Pine Labs earlier this year – in July – for the (PA/PG) license. At that time, the RBI had informed that the companies, like RBI’s methods for all licenses, would need to conduct an audit and submit the report to the apex bank. The companies would have a window of six months to submit it as part of the process of the final authorization of the license.
“As part of this process, RBI has suggested us to temporarily withhold onboarding new online merchants till such details are submitted. As a responsible corporate that operates under the ambit of RBI, Razorpay has abided by the regulatory requirement,” Razorpay said in a statement, adding that this decision would not have an impact on its current merchant base.