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RBI to Introduce Guidelines for POS Licensing, might impact big players

Reserve Bank of India (RBI) is set to unveil regulations governing the issuance of licenses in the point-of-sale (POS) industry, marking a significant development in financial services. The move, aimed at enhancing oversight in offline payments, seeks to ensure fairness in operations and establish parity between online and offline payment providers.

Existing players such as banks and non-banking financial companies (NBFCs) currently involved in the POS sector will reportedly remain unaffected. However, third-party operators including BharatPe, MSwipe, Paytm, and PineLabs are expected to feel the impact, necessitating them to obtain licenses to continue their activities.

The proliferation of third-party operators in offline payments has underscored the urgency for regulatory measures, as per the report. Banks have increasingly relied on third-party POS services to streamline their operations. These operators handle daily average balances of INR 400 crore, a fraction of the INR 1,000 crore managed online, highlighting the need for regulatory adjustments as the offline market expands.

Similar to payment aggregator licenses, POS operators may be required to meet specific criteria, including a minimum net worth of INR 25 crore and compliance with RBI stipulations.

Industry challenges and concerns have driven the call for a licensing framework. Issues include a surge in cash loans on credit cards, leading to concerns about merchants offering cash in exchange for transactions, posing challenges for KYC procedures and regulatory oversight.

Data storage practices among POS operators also raise security concerns, with varying retention periods necessitating standardization aligned with security protocols. Additionally, apprehensions exist regarding fund management by third-party players, including delayed settlements and the risk of mishandling funds by unregulated entities.

While no incidents have been reported, concerns persist regarding the eligibility of players like Paytm and BharatPe, awaiting central bank approval for payment aggregator services, to operate in the offline POS segment once licensing requirements are enforced.