Payment Gateway License: What it takes to set up a Gateway?

Every Payment Gateway license holder must conform to the standards relating to the capital requirements. The Reserve Bank of India has effectively set these standards for regulating the registered Payment Gateway Systems in India. We have tried to detail some of such requirements in this article.

Maintaining recommended Net Worth

For Existing Payment Gateways

For existing Payment Gateways, a net worth of ₹15 crores is required by March 31, 2021. Also, a net worth of ₹25 crores is needed by the end of the third financial year. This means on or before March 31, 2023. In addition, the Payment Gateway license holder must maintain a net worth of ₹25 crores for the stipulated times.

For newly incorporated Payment Gateways

New Payment Gateways must maintain a minimum net worth of ₹15 crores. The Gateway company must maintain such an amount at the time of authorization application. To gain authorization, gateways must attain a net worth of 25 crore rupees by the third fiscal year’s end. The newly registered  Gateway must maintain such a net worth of 25 crore rupees at all times.

But what does Net-worth of a Payment Gateway composed of?

The Net worth composition of a licensed Payment Gateway System must state the following:

  • Paid-Up Equity capital
  • Preference Shares (compulsorily convertible to equity)
  • Free Reserves
  • Share Premium Account Balance
  • Capital Reserves

Payment Gateways: Capital Reserves

Payment Gateways’ capital reserves represent a surplus from its assets’ sale proceeds. But these capital reserves are not created by revaluation of its assets when adjusted for the following:

  • Accumulated Loss Balance
  • Book value of Intangible Assets
  • Deferred Revenue Expenditure

For Compulsorily convertible preference shares, they can be non-cumulative or cumulative. Therefore, shares must be compulsorily convertible into preferential equity shares. Finally, the shareholding agreements between the stakeholders must specifically prohibit any withdrawal of this capital at any time.

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FDIs in Payment Gateway System

Entities having Foreign Direct Investment (FDI) must be guided by the Government of India’s Consolidated Foreign Direct Investment Policy as well as the relevant FEMA (Foreign Exchange Management) regulations for this subject.

CA Certification in support of the Gateway’s Networth Claim

The Payment Gateways must submit a certificate enclosed from their Cas (Chartered Accountants). This certificate must comply with the applicable net-worth requirement during their submission for authorization.

In addition, newly incorporated NBFCs (Non-Bank Entities) must not have an audited statement of financial accounts. And they must also submit a certificate in the enclosed format from their Chartered Accountants. The enclosure will be regarding the current net worth. The applicant must supplement the enclosure with a provisional balance sheet.

What if the Payment Gateway defaults on capital submission?

If a registered Payment Gateway doesn’t comply with the stipulated net-worth requirement within the given time frame, then it will wind up in the payment aggregation business. Therefore, banks maintaining nodal escrow accounts of these Payment Gateways must monitor and report compliance to the Authority.

Fit and Proper Criteria for the Payment Gateway Personnel

Every licensed Payment Gateway must ensure that they are managed professionally. The promoters of the entity must satisfy the fit and proper criteria prescribed by RBI. The directors of the applicant entity must submit a declaration in the enclosed format. RBI must also check the fit and proper status of the applicant entity. Also, they must check the management by obtaining inputs from other regulators, government departments, etc., as they deem fit. The RBI will return the applications of those entities not meeting the eligibility criteria or not in the prescribed form with all details.

Change in Management in Payment Gateways

The Gateway owner must communicate any takeover or acquisition of control or change in management of a non-bank Payment Gateway by way of a letter to the Chief General Manager, Department of Payment and Settlement Systems (DPSS), RBI, Central Office, Mumbai.

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Notification for Updation

The Gateway owner must communicate the information within 15 days with complete details, including the Declaration as well as the Undertaking by each of the new directors if any. Also, the RBI must examine the fit and proper status of the management and place reasonable restrictions on such changes.

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