RBI’s stricter KYC rules may slow merchant onboarding

The Reserve Bank of India’s (RBI) draft norms for stricter Know Your Customer (KYC) rules for payment aggregators could slow the onboarding of online merchants by up to 90%, according to industry experts.

Source: PTI

Experts are of the opinion that new rules for KYC by the RBI will slow down onboarding of online merchants by as much as 90%. The new rules will apply to existing players in online payment platforms such as Razorpay, Cashfree, and PayU, as well as card payment companies such as Pine Labs, Innoviti Payments, and MSwipe, and QR code deployers such as PhonePe, BharatPe, and Google Pay.

The regulator has suggested that existing players conduct a re-KYC exercise on existing merchants, while onboarding new merchants will require a bank-grade KYC process.

“One physical KYC can cost as much as Rs 400-500 depending on many factors, even if we are talking about 10 lakh merchants for a specific service provider, we could be looking at around Rs 40-50 crore of instant cost impact,” according to a top executive at a large payment firm.

CPV, or contact point verification, is part of the regulator’s proposed enhanced due diligence for payment players, which means that physical visits to merchant outlets will be required for verification.

According to industry estimates, it could triple or quadruple the operational costs of these digital payment companies. Onboarding new merchants could take a few weeks instead of a few hours or days, as it does now.

“The large players in the industry could be signing up around 2,000 to 4,000 merchants on a daily basis for online payments, but given the current capacity (going by the draft rules), only 10% of the sign up applications can be completed on time, so there is a chance that the remaining 90% will drop off,” according to the same executive.

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Originally published in the Economic Times