Who is authorised to deal in forex in India? What is the role of fintechs in this business, and where do banks stand? ETtech explains.
Elevate Your Tech Prowess with High-Value Skill Courses
| Offering College | Course | Website |
|---|---|---|
| MIT | MIT Technology Leadership and Innovation | Visit |
| Indian School of Business | ISB Product Management | Visit |
| Indian School of Business | ISB Professional Certificate in Product Management | Visit |
Who can deal in forex?
Entities who can deal in foreign exchange in India are categorised as ‘Authorised Dealers’. There are two categories of Authorised Dealers – AD-I and AD-II. Banks are categorised as AD-I while non-banks are put under AD-II. Mostly money exchange service providers are non-bank entities who have this licence. Among Small Finance Banks, Ujjivan SFB and Jana SFB are AD-II licence holders. Payment banks are not part of the AD-II list as disclosed by the RBI.
Where do fintechs stand here?
Given the rise of ecommerce, many online payment players started offering payment services to exporters and importers in India, mostly selling digital goods and services. In 2015 the central bank issued OPGSP (online payment gateway service providers) guidelines to regulate this sector. Subsequently, in 2022, the RBI issued draft guidelines on OEIF (online export import facilitators) to update the current OPGSP guidelines. Finally, in October 2023, it issued a payment aggregator cross-border licence to regulate this space.
Also read | RBI, ED likely to turn up heat on mobile payment users violating Fema rules
Discover the stories of your interest
What can fintechs do?As a facilitator of cross-border money flow, these fintechs need to work with certain banks which are categorised as AD-I. Banks undertake the due diligence on the accounts, but the payment player only operates as the gateway to offer digital payment acceptance systems to merchants. PayPal is one of the major cross-border payment players in India. After PayPal withdrew from the domestic payments ecosystem in India, it focused only on the cross-border space.Paytm’s international payments offerings
Paytm offers international payment capabilities to Indian merchants who want to sell products outside India under its enterprise payment category. Paytm allows consumers from outside India to buy from Indian merchants and service providers and pay in their own currency or INR. This service is provided by Paytm through its partner banks which are ‘Authorised Dealers’. Paytm is not the only payment aggregator that offers this service to Indian merchants; others like Razorpay offer this service too.
What are the regulatory requirements?
The RBI has come up with clear guidelines for payment aggregators looking to operate in this space. While they will need explicit consent from the central bank to offer this service, they will also need to build internal checks and balances to ensure safety of transactions. The player is mandated to follow guidelines on governance, merchant on-boarding, customer grievance redressal and dispute management, fraud prevention and others. Applicants will need a minimum net worth of Rs 15 crore at the time of application, to be pushed up to Rs 25 crore by March 2026. They will need to become members of the Financial Intelligence Unit of the central government.
