The Reserve Bank of India (RBI) has revised its regulatory framework for domestic money transfer services by regulated entities. Under the revised rules, the central bank has made the Know Your Customer (KYC) record requirements tougher than before. The changes will come into effect from November 1.
The changes recently implemented in the existing framework were a result of a comprehensive review of multiple payment transfer services. According to a communication from the Reserve Bank of India to authorised payment system operators, the remitting bank is now required to acquire and maintain a record containing the name and address of the beneficiary for cash disbursement. Moreover, every transaction initiated by a remitter must undergo validation through an additional factor of authentication (AFA).
The rules governing the domestic money transfer segment were implemented in 2021. Following their introduction, there has been a notable rise in the number of banking outlets, advancements in payment systems, and simplification in meeting KYC prerequisites. According to the regulator, users now have a variety of digital choices for transferring funds.
The remitting banks/business correspondents (BCs) shall register the remitter based on a verified cell phone number and a self-certified ‘officially valid document’ (OVD), RBI said.
Changes done
> Under the new framework, remitting banks will be required to maintain records of the name and address of beneficiaries for cash pay-out services.
> This has been done to improve traceability and accountability in cash-based transactions.
How will it affect you
For cash pay-in services, banks and business correspondents must register remitters using a verified cell phone number and a self-certified ‘Officially Valid Document (OVD)’ in accordance with the Master Direction – Know Your Customer (KYC) Direction 2016.
This requirement is put in place to enhance identity verification measures and effectively reduce the risks associated with potential fraudulent activities.
The new guidelines will not cover card-to-card transfers, which will continue to be governed by existing regulations specific to such instruments.
Verification factor
The RBI has said every transaction by a remitter will now require validation through an Additional Factor of Authentication (AFA).
The bank that is remitting funds will have to include remitter details as part of the IMPS/NEFT transaction message. The transaction messages should include an identifier to identify the fund transfer as a cash-based remittance, the central bank added.
Aligning with I-T act
Remitting banks must adhere to the regulations outlined in the Income Tax Act of 1961 regarding cash deposits.
The updated protocol involves integrating remitter information into IMPS/NEFT transaction messages and delineating cash-led remittance transactions with a distinct identifier.
"The new guidelines reaffirm the need for Domestic Money Transfer, especially for Bharat customers, to complement digital payments in today's era. The new KYC requirements are consistent with RBI's stance on tighter KYC to prevent fraud and misuse. We also believe these guidelines will help standardise and elevate the customer experience across various touchpoints," said Yashwant Lodha, Co-founder, PayNearby.
Ankit Ratan, Co-founder & CEO, Signzy on Domestic Money Transfer - Review of Framework.
"The RBI has made changes to the Domestic Money Transfer (DMT) framework to strengthen user identity verification. Each transaction by a remitter will now be validated by an additional factor of authentication (AFA), providing an extra layer of security and ensuring that only authentic parties are involved in the transaction. Technological advancements have provided multiple options for money transfers; however, identity verification of the parties involved in online transactions has become paramount. By registering the remitter based on a verified cell phone number and a self-certified ‘Officially Valid Document (OVD), banks can ensure the authentication of users and confirm they are who they claim to be," said Ankit Ratan, Co-founder & CEO, Signzy.
He added that remitting banks and business correspondents must register the remitter based on a verified cell phone number and a self-certified ‘Officially Valid Document (OVD), as per the Master Direction – Know Your Customer Direction 2016. We believe that by implementing a robust DMT framework, banks will be able to enhance trust in the ecosystem, making consumers more comfortable adopting online modes of fund transfer.