RBI – Dutch Uncles

RBI’s New Fintech Department and Regulations- A Good News for the Indian Fintech?

Shalmoli Sarkar — Fri, 14 Jan 2022 08:57:34 +0000

Demonetisation and contactless payments as a preventive measure in the pandemic has been a fillip to the fintech sector in India especially in digital payments and loans. As of June 2021, India has been home to 16 fintech unicorns, which speaks of its massive growth. The Indian market has also been a breeding ground for investors willing to invest in NFTs and cryptocurrency which is yet unregulated and holds much of a debate regarding it being a safe investment option.

According to a joint report by BCG and FICCI, India’s fintech industry is expected to reach $150-$160 billion by 2025. As the fintech landscape evolves and more players enter to serve various demographics, there is a need for the sector to be regulated especially those offering liquidity services which is the exclusive domain of banks.

RBI’s new fintech department to push innovation

The RBI has set up a separate internal department for fintech on 4th January 2022. This department aims to promote innovation and also identify the challenges and opportunities associated with fintech companies and address them promptly.

All matters related to the facilitation of constructive innovations and incubations in the fintech which might affect the financial sector/ markets and fall under the purview of the bank will be dealt by the internal fintech department including matters of inter-regulatory coordination and internal coordination.

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According to a joint report by BCG and FICCI, India’s fintech industry is expected to reach $150-$160 billion by 2025.

Widening the gates of credit data access for fintech

The RBI has already taken the first step to promote innovation in the Indian fintech companies by allowing them to directly access data from credit information bureau. Earlier access to data from credit information bureau was a privilege that could be enjoyed by specified users and regulated entities like telecom companies, insurance providers, rating agencies, and registered brokers. For assessing the credit profiles of customers, the fintech companies earlier used alternative data from social media footprints and from the bills of telephone and electricity to judge creditworthiness making the process cumbersome. This direct credit data access to millions of Indians will benefit the firms in the below way:

Take better credit decisions.
Several banks collaborate with fintech firms for the disbursal of loans digitally, therefore access to data will help banks make informed decisions while underwriting the credit.
Access to credit data will help these firms to develop tailor-made products for customers that require less documentation and lower interest rates.

New criteria is a challenge

RBI’s decision of widening the doors for data access might benefit a few fintech companies. Only those firms will be eligible to have access to data that are Indian-owned with diversified ownership. It is a major hurdle since the majority of the fintech firms in India are foreign VC/ PE funded and may not match the ownership criteria. The other criteria involves only those fintech firms to be eligible to process information to support regulated lending entities such as banks and financial institutions, whose net worth is Rs 2 crore. The reason to favour Indian-owned companies is to follow local data governance and compliance.

Cybersecurity is mandatory

With increasing data leaks, platform downtimes, and information theft, RBI has mandated the firms to have a certification from CISA ( Cybersecurity and Infrastructure Security Agency) and to have robust data protection in place, since data is the backbone for this industry. It is necessary to develop a strong mechanism to protect data and invest more in such mechanisms to evade cyberattacks in the future and cement people’s beliefs in financial technology processes.

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Facts About LRS That Every Investor Should Know

Aakash Sharma — Thu, 14 Oct 2021 03:35:11 +0000

Whether you plan to invest in foreign markets, take a vacation abroad, or send your children outside India to study, the RBI’s Liberalised Remittance Scheme (LRS) can help you solve all your currency-related concerns. In addition to remittances and transfers, you can use foreign exchange facilities covered under the LRS.

The Reserve Bank of India (RBI) oversees the Liberalised Remittance Scheme. The scheme allows resident individuals to pay for international investments and expenses in one fiscal year. An individual is said to be a resident in the tax year for 60 days or more in India in the relevant tax year and a total of 365 days or more in the previous four tax years.

Current laws and regulations allow residents to transfer up to $250,000 per tax year. They can use the money for travel expenses (personal or professional), medical care, studies, gifts and donations, care of relatives, etc.

The remitted funds can also be used to purchase stocks, bonds, and real estate in foreign markets. Individuals may open, manage, and maintain foreign currency accounts with banks outside India to complete program-approved transactions.

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As the name suggests, the liberalised remittance scheme (LRS) is formulated for the remittances (investing in foreign lands) that a resident individual is permitted to make.

However, trade in foreign entities, including buying lottery tickets, proscribed magazines, etc., or any items prohibited under Schedule II of Foreign Exchange Management (Current Account Transactions) Rules, 2000 is not allowed. Resident individuals cannot, directly or indirectly, send remittances to countries designated by the Financial Action Task Force (FATF) as non-co-operating countries and territories.

LRS and international transactions

Before international trade and transactions, you need to convert the Indian rupee into US currency for foreign investment or consumer purposes. The Liberalised Remittance Scheme describes how these transactions work. As an Indian resident, you must purchase dollars using the Indian rupees (INR) from an authorised dealer (the bank) in India.

The dollars can then be remitted or spent abroad for buying property or diversified assets like equity dividends. Here, the allusion of the dollar as a currency is easier as remittance can be in any openly adjustable foreign currency, including dollars.

Types of LRS transactions

LRS current account transactions

If you are engaging in international travel, the foreign exchange facility determines if LRS is allowed for you. In addition to remittance, you also have the forex facility at your disposal for specific purposes. These are referred to in Paragraph 1 of Schedule III of FEM (CAT) Amendment Rules 2015, which consist of the rules for the period of the surrender of foreign exchange. The individual must maintain the usage of forex within the limit of $2,50,000 only.

Purposes for which LRS can be utilised under current account transactions

- While making a private visit to any country except Nepal and Bhutan, this facility could be availed. You can use your credit card and ATM cash withdrawals if the card allows international transactions.
- Travelling for business or attending a conference or specialised training abroad are also legitimate reasons for this transaction.
- Medical overheads abroad or accompanying a patient going abroad for medical treatment/ check-up.
- It covers the costs of education/studies abroad and employment opportunities.

All such transactions are under the purview of current account transactions. In addition, the Authorised Dealer (banks) can initiate the remittance without RBI’s permission if the transactions are not listed in the prohibited category. However, the person remitting the funds must bear the responsibility to comply with the Foreign Exchange Management Act (FEMA) rules.

LRS capital account transactions

LRS rules define transactions such as investing abroad in shares, property etc., as capital account transactions. Only specific capital account transactions are allowed under LRS rules.

Purposes for which LRS can be utilised under capital account transactions

- Opening a bank account abroad, i.e., a Foreign Currency Account is covered.
- Purchase real estate property overseas can be done under this form.
- For making investments overseas, including investing in shares, mutual funds, debt instruments, etc., LRS can be used.
- It can also set up Wholly Owned Subsidiaries and Joint Ventures outside India for business operations.

Retaining and reinvesting the funds

When you invest in stocks and investments overseas, LRS rules allow you to hold and support your profits in that country (unless it is an overseas direct investment). Investing abroad and accruing interest or dividends on the deposits and investments made abroad do not need to repatriate. This allows you to retain the premium earned on your stocks or interest earned from the assets held as bonds and other foreign securities.

This type of earned income can then be utilised to reinvest or to fulfil other expenses abroad. Gains from investments in real estate and ETFs can be reinvested in foreign markets without sending it back to the domestic bank account.

LRS limits

Currently, all residents, including a minor (countersigned by an administrator), can remit up to 2.5 lakh US dollars (USD 2,50,000) per year, according to the Liberalised Remittance Scheme. At the exchange rate of Rs 76 for a dollar, the limit is about Rs 1.90 crore. There is no limit to the number of annual transactions. Even if one sends the remitted amount back in the same year, no further remittance is permitted as the limit is set for individual fiscal years.

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The Emerging Segment Of Recurring Payments, Who Is Taking The Biggest Slice?

Aakash Sharma — Thu, 26 Aug 2021 08:30:09 +0000

In recent months, fintech unicorn Razorpay and payment technology giant Mastercard have launched Mandate HQ, a secure interface for recurring payments. This has come after the Reserve Bank of India (RBI) put out a directive regarding an electronic authorization processing framework for online transactions to promote the secure adoption of digital payments.

RazorPay and Mastercard have developed advanced solutions to facilitate the processing of recurring payments, an area that has emerged blazingly after the central bank’s intervention in such transactions.

What are recurring payments?

The recurring payment is a payment model in which customers allow merchants to periodically and automatically withdraw funds from their accounts for the goods and services they offer. Recurring payments include bills for utility, cell phones, credit cards, hosting fees, Internet Service Provider (ISP) fees, etc.

Recent RBI rules regarding recurring payments

The Reserve Bank of India (RBI) has published a framework for processing electronic payment orders in recurring online transactions. Under the new rules, RBI requires AFA (Additional Factor of Authentication) for all recurring transactions involving debit cards, unified payment interface (UPI), credit cards, or other prepaid payment methods for under Rs 5,000 transactions.

Under the new rules, banks must inform customers in advance that recurring payments are due and complete the transaction after customer approval. This rule may apply to monthly subscription fees for several OTT-streaming platforms, including Netflix, Amazon Prime, and Disney+Hotstar, among others.

Mandate HQ by Razorpay and Mastercard

MandateHQ is a comprehensive platform that helps banks manage the end-to-end mandate lifecycle of orders, including creating, viewing, updating, cancelling, processing and suspending orders and their depreciation. Mandate HQ is a white label product that allows end-users to view and manage the history of all pending orders and all recurring transactions.

In addition, the Mandate HQ platform helps banks activate 24-hour prepaid email, SMS and WhatsApp notifications and provides the end-user with a portal for managing card authorizations.

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Razorpay’s Mandate HQ is an API-based plug-in solution that cuts commission times for any card-issuing bank that wants to allow its customers to make recurring payments.

The Mandate HQ solution can be fully integrated into any bank in 7 days instead of other solutions that generally take several weeks. In addition to its partnership with Mastercard, ReservePay is also working with three banks and is in talks with more than 20 banks to integrate this technology into their existing payment infrastructure.

Industry estimates – what can others learn?

Industry experts estimate that the total market opportunity for recurring payments in India will be between $280 million and $336 million in the coming years. With the integration of the new subscription-based business model, recurring payments have tripled over the past two years with an annual growth rate of 40%.

Industries such as OTT platforms (primarily regional), advertising technology, food technology, health technology and the economy, in general, are the biggest beneficiaries of this change. In general, customers can have multiple guarantees for different transaction prices. Start-ups and young entrepreneurs entering the industry can work in these areas under the central bank’s guidance to benefit a wide range of customers and thus strengthen their business.

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