FinTechRBI’s Draft Online Export Import Facilitators Guidelines

INTRODUCTION

The Reserve Bank of India (hereinafter referred to as the “RBI”) has issued draft guidelines for processing and settlement of small-value export and import-related payments made through Online Export-Import Facilitators (hereinafter referred to as the “OEIFs”). The Draft guidelines are designed to replace the existing Online Payment Gateway Service Providers (hereinafter referred to as the “OPGSPs”) Guidelines. The goal of the proposed guidelines is to simplify and rationalize the financial settlement procedure for export and import via e-commerce.

OEIFs are defined in the draft guidelines as payment aggregators or payment gateways that support online remittances for low-value exports and imports of commodities and digital products via e-commerce. According to the draft guidelines, an OEIF that facilitates payments for import transactions operates as a payment aggregator and is required by the RBI to acquire authorization under the Payment and Settlement Systems Act, 2007 (hereinafter referred to as the “PSS Act”).

The Draft OEIF standards were created for the community that uses the online channel to export and import products and services to and from customers worldwide. India is one of the largest service export markets, with a flourishing gig economy, accounting for 60% of total export volume for services and 40% for goods and commodities.

ROLES AND RESPONSIBILITIES OF OIEF

• To have a well-documented policy or an agreement outlining the various stakeholders’ duties, responsibilities, and rights under the contract. A copy may be provided with the RBI via the AD bank.
• To formulate a policy for the timely handling of payment-related issues and complaints.
• To ensure that the instructions regarding the timelines for routing the funds through Import/Export Collection Accounts, and permissible debits and credits are strictly adhered to.
• To establish a Reserve Fund in India for refunds in the event of a dispute.
• To complete and ensure proper due diligence and adherence to KYC/AML/CFT norms as stipulated in the Reserve Bank of India’s Master Direction of KYC issued before on-boarding merchants, i.e. exporters from India as well as importers from other countries, and only bona fide transactions take place under this arrangement.
• In accordance with applicable regulatory requirements, invoices prepared and delivered to importers in India must individually reflect the cost of tax, insurance, freight/delivery costs, etc.
• OEIF shall identify the actual amount of allowable return prior to purchase in accordance with the refund policy of OEIF and/or on-boarded merchants.
• If the items purchased are discovered to be damaged or defective upon delivery, the Indian buyer will be appropriately reimbursed and compensated.
• Prior to the delivery of goods/digital products, the OEIF must guarantee that the Indian buyer is indemnified from any liability arising from such cross-border import transactions.

KEY FEATURES OF THE GUIDELINES

• Requirements for OEIFs:

All OEIFs are classified as Payment Aggregator (‘PA’) or Payment Gateway (‘PG’) entities, as follows:

(a) OEIFs facilitating import transactions are classified as PAs and must obtain authorization under the PSS Act; and

(b) OEIFs facilitating export transactions are classified as PGs and must comply with the baseline technology recommendations under the ‘Guidelines on Regulation of Payment Aggregators and Payment Gateways’. As a result of their classification, such OEIFs will be subject to appropriate compliances in accordance with the PA/ PG Guidelines.

• Permitted Accounts:

OEIFs will continue to maintain export/import collection accounts in accordance with the Existing Guidelines. Furthermore, OEIFs that facilitate import transactions must now maintain a nodal account to channel payments from the importer to the OEIF’s import collecting account. For the receipt of export payments, AD banks will be required to create a Nostro account or use an existing Nostro account.

• Digital Products:

While the Existing Guidelines allow OPGSPs to provide payment services for imports of goods and software as well as exports of goods and services, the Draft Guidelines envision OEIFs providing payment services only for import/export transactions involving goods and ‘digital products’ – the Draft Guidelines do not define such ‘digital products’.

• Limits for transactions:

Import transaction limits have been raised to USD 3,000 (from USD 2,000 before) while export transaction limits have been raised to USD 15,000 (from USD 10,000 before).

• Increased Responsibilities of OEIF Entities:

The Draft Guidelines impose specific obligations on OEIFs, such as performing due diligence on merchants onboarded by OEIFs in accordance with the RBI’s KYC/ AML norms, ensuring that Indian buyers are adequately compensated in the event of damaged/ defective goods, and having a policy/ agreement in place disclosing the duties/ responsibilities/ rights of various stakeholders under the OEIF arrangements.

• Timeline for Credit of Funds:

To provide flexibility, the Draft Guidelines specify the total time taken to credit the funds in case of import transactions, into overseas seller’s account from the date of receipt of funds from the importer in India; and in case of the export transaction, into the AD bank’s Nostro account once the funds are received from the overseas buyer and into exporter’s account in India from the date of receipt of funds from the overseas buyer, will be as per the agreement between the OEIF and the respective entity.

SHORTCOMINGS OF THE OEIF FRAMEWORK

While the intent of the RBI has been to streamline the OPGSP regime for small-value digital payments in relation to import/export transactions through e-commerce and protect the interest of Indian stakeholders, certain provisions in the Draft Guidelines subject OEIF entities to a more stringent regime. This includes OEIF’s mandatory authorization under the PSSA to facilitate import-related payments, following RBI KYC rules and providing sufficient remuneration for Indian purchasers in specific instances. This may not only lead to an increase in some indirect compliances relevant to PA firms but may also pose practical issues for OEIF entities.

The Draft Guidelines also create contradictory regulatory positions. Presently, it is not obligatory for PGs to comply with the baseline technology requirements under the PA/PG Guidelines, though the Draft Guidelines seem to imply that such compliance will be mandatory for OEIFs enabling export transactions and payments.

According to industry estimates, 350,000 small-value service exporters utilize the OEIF “pipes” to transact with the world. If the RBI passes the framework in its current form, there may be no relief for this sector. The key reason among other drawbacks is that the framework removes the services sector totally from its scope, threatening the livelihoods of these 350,000 exporters. These tiny enterprises range from website design to SEO/SEM, AI/ML technology to teaching yoga, tutoring to ed-tech start-ups, and even in the Software-as-a-Service (SaaS) space. They serve customers in 200 countries and indirectly support an estimated 1.2 million jobs. These service exports are becoming an important source of income.

The framework covers “digital products,” but does not define the term. The expression is undefined in India’s Foreign Trade Policy also. A streaming service, like the other API-based services offered by Indian SaaS companies and fintech, might be considered a digital product. Such legal uncertainty may prevent small-value export-import firms from receiving and remitting payments through formal banking channels supported by OEIFs.

Furthermore, the usage of informal marketplaces by small enterprises to transfer or receive cash creates money laundering risks.

AMLEGALS REMARKS

The fast evolving and changing technology and advancing of online payments comes with the threat of data breach and security breach. There have been laws in place regulating the same and hence, at times makes the process complex. The Draft OEIF Guidelines aim to modify the existing guidelines in order to simplify and rationalize the process of payment settlement for export and import via e-commerce. However, the additional compliance burden and financial risk on the putative OEIFs will be something the RBI will need to navigate with stakeholders. Integrating the services bucket in the regulatory framework for OEIFs and guaranteeing a level playing field for them are key changes which would help in better regulation and governance.

– Team AMLEGALS assisted by Ms. Shreya Verma (Intern)

For any queries or feedback, please feel free to get in touch with himanshi.patwa@amlegals.com or tanmay.banthia@amlegals.com.