The Reserve Bank of India (RBI) has imposed a penalty of ₹21 lakh on digital payments platform PhonePe for failing to maintain adequate escrow account balances on certain days. The central bank found that the company’s escrow accounts were sometimes insufficient to cover amounts owed to merchants or tied up in outstanding prepaid payment instruments. Additionally, PhonePe did not promptly report these shortfalls to the RBI, which is a regulatory requirement under the Payment and Settlement Systems Act.
Escrow accounts are critical for ensuring that funds collected by payment service providers are safely segregated and available for settlement with merchants and customers. The RBI’s review revealed discrepancies in PhonePe’s account balances, highlighting gaps in compliance monitoring and reporting mechanisms. While the amounts involved were relatively small, the central bank emphasized that timely reporting and strict adherence to escrow regulations are vital for maintaining trust in digital payment systems.
PhonePe has acknowledged the RBI’s observations and stated that it has taken steps to strengthen its internal processes to prevent future occurrences. The company confirmed that it would ensure real-time reconciliation of escrow accounts and timely reporting of any anomalies to the regulator.
The RBI’s action serves as a reminder for all digital payment platforms to maintain strict compliance with escrow requirements, particularly given the growing scale of online transactions in India. With digital payments becoming a cornerstone of the Indian economy, adherence to regulatory norms is essential for safeguarding consumer funds, maintaining system integrity, and supporting the broader objective of financial inclusion.
By penalizing PhonePe, the RBI reinforces its commitment to strong oversight of payment systems and underlines the importance of transparency and accountability in digital financial operations. The directive also encourages other fintech companies to review their internal controls and ensure compliance with all regulatory mandates.
