With penalties, restrictions, RBI turns up heat on lax KYC

livemint.com:

Paytm Payments Bank, and most recently, on business payment solutions providers (BPSPs, typically fintech companies). Even in October, RBI had fined the payments bank ₹5.39 crore for non-compliance with some provisions of KYC guidelines, cybersecurity framework, etc. Others have not been spared either.

Through the past year, the regulator has pulled up larger lenders like Axis Bank and Standard Chartered Bank, apart from a clutch of cooperative banks. KYC guidelines act as a vital safeguard against money laundering, by mapping each account to a bona fide customer. It mandates banks and other lenders to ask for proof of address and identity from customers before opening bank accounts or even while availing loans.

People aware of the development said that the common thread tying RBI’s action against Paytm Payments Bank and asking Visa to stop businesses from paying each other via credit cards is lack of strong KYC implementation. Businesses tend to pay their vendors by bank transfers or commercial credit cards, sometimes with a fintech managing these payments. These fintechs are called business payment service providers.

Industry officials said that the restrictions imposed on BPSPs also stem from KYC concerns where many people accepting payments routed through these fintechs were not onboarded as merchants. Meanwhile, Mint reported 3 February that Paytm Payments Bank did not have KYC for a significant section of its customers and instances include a single PAN (permanent account number)—an identity document issued by the income tax department—being linked to over 100 or even 1,000 customers. “I think some fintechs may have registered themselves as merchants with payment gateways and conducted the business of a payment