Cross Border

Payment Gateway

Cross Border Payments – An Overview

FinTech or financial technology has emerged as a relatively new industry in India. FinTech is an industry comprising companies that use technology to offer financial services. These companies operate in insurance, asset management and payment, and numerous other industries. In the era of globalization, it is immense need to eliminate cross border payment complexities and minimize the operational costs. E-Commerce is expected to grow up to 4 trillion dollars by 2020. In order to promote and regularize the control over such cross border e-commerce transactions, on 16 November 2010 Reserve Bank of India (RBI) vide its circular issued a set of guidelines to cover such e-commerce arrangements on “Processing and settlement of Exports related receipts facilitated by online Payment Gateways” with OPGSP.

What is AD Category – 1 Bank?


Authorized Dealer Category -I Banks are the banks which are authorized by the Reserve Bank to deal in foreign exchange for specified purposes. The conversion of currency notes, coins or travelers’ cheques designated in foreign currency into Indian Rupees and vice versa is possible in AD Category-I and can also to appoint franchisees to undertake the purchase of foreign currency.

Regulations for facilitating Import Transactions

-The facility shall only be available for import of goods and software (as permitted in the prevalent Foreign Trade Policy) of value not exceeding USD 2,000 (US Dollar Two Thousand) only.

-The balances held in the Import Collection account shall be remitted to the respective overseas exporter's account immediately on receipt of funds from the importer and, in no case, later than two days from the date of credit to the collection account.

-The AD Category –I bank will obtain a copy of invoice and airway bill from the OPGSP containing the name and address of the beneficiary as evidence of import and report the transaction in R-Return under the foreign currency payment head.

-The permitted credits in the OPGSP Import Collection account will be:

  1. Collection from Indian importers for online purchases from overseas exporters electronically through credit card, debit card and net banking and

  2. Charge back from the overseas exporters.

-The permitted debits in the OPGSP Import Collection account will be:

  1. Payment to overseas exporters in permitted foreign currency;

  2. Payment to Indian importers for returns and refunds;

  3. Payment of commission at rates/frequencies as defined under the contract to the current account of the OPGSP; and

  4. Bank charges

Regulations for facilitating Export Transactions

-The facility shall only be available for export of goods and services (as permitted in the prevalent Foreign Trade Policy) of value not exceeding USD 10,000 (US Dollar ten thousand) per transaction.

-AD Category-I banks providing such facilities shall open a NOSTRO collection account for receipt of the export related payments facilitated through such arrangements. Where the exporters availing of this facility are required to open notional accounts with the OPGSP, it shall be ensured that no funds are allowed to be retained in such accounts and all receipts should be automatically swept and pooled into the NOSTRO collection account opened by the AD Category-I bank.

-The balances held in the NOSTRO collection account shall be repatriated to the Export Collection account in India and then credited to the respective exporter's account with a bank in India immediately on receipt of the confirmation from the importer and, in no case, later than seven days from the date of credit to the NOSTRO collection account.

-The permitted debits to the OPGSP Export Collection account maintained in India will be:

  1. payment to the respective Indian exporters’ accounts;

  2. Payment of commission at rates/frequencies as defined under the contract to the current account of the OPGSP; and

  3. Charge back to the overseas importer where the Indian exporter has failed in discharging his obligations under the sale contract.

-The only credit permitted in the same OPGSP Export Collection account will be repatriation from the NOSTRO collection accounts electronically.

India’s FDI Policy for Payment Gateway Business

-Payment Gateway Business is eligible for 100% Foreign Direct Investment under Automatic Route

-Currently, there is no such regulation providing the minimum capital requirements for an Entity to operate Payment Gateway Business in India

What is Payment Gateway, Payment Aggregators & Payment Collection Agents?

-These are entities who provide technology infrastructure to route and / or facilitate processing of an online payment transaction and perform other functions without actually handling the funds.

-Facilitate e-commerce sites and merchants to accept various payment instruments from the customers for completion of their payment obligations to the merchants without the need for merchants to create a separate payment integration system of their own.

-Facilitate merchants to connect with acquirers. In the process, they receive payments from customers, pool and transfer them on to the merchants after a time-lag. Apart from handling funds, they also get access to customer data.

-Payment Gateways and Payment Aggregators may also provide services which include generation of settlement via netting of the funds received by the merchants on boarded by them. By being the bridge between consumers at one end and merchants at the other end, these service providers play a role in processing and completion of the payment transactions.

How to Start Payment Gateway Business in India?

-Foreign Companies desirous of doing payment business may set up liaison office or Indian Entity depending on their business model with Proposed Indian Directors & Shareholders

-After successful incorporation of Indian Entity, we need to open account with AD Category-1 Bank and in some special cases it may also require prior approval of RBI before starting the business

-The Payment Gateway Company shall connect their IT System with the Bank’s Host to Host API System

-The Payment Gateway Company shall ensure adherence to the Information Technology Act, 2000 and all other relevant laws/regulations in force

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