The Reserve Bank of India (RBI) has imposed a monetary penalty of ₹3.10 lakh on Cashfree Payments India Private Limited for not following certain regulatory guidelines related to payment services. The action was taken for non-compliance with RBI’s guidelines on the regulation of Payment Aggregators (PAs) and Payment Gateways (PGs).
RBI found that the company had made certain impermissible debit transactions from the escrow account, which violated the regulatory guidelines. Based on this finding, the central bank decided to impose the ₹3.10 lakh penalty.
RBI clarified that the penalty has been imposed due to deficiencies in statutory and regulatory compliance. The regulator also said that the action does not question the validity of any transactions or agreements between the company and its customers.
Why this penalty imposed? What are the rules of Escrow Account?
An escrow account is a special bank account where money is kept temporarily by a third party until certain conditions of a transaction are completed. In simple words, an escrow account acts as a safe holding account for money during a transaction between two parties.
How an Escrow Account Works
An escrow account usually involves three parties:
- Buyer (payer) – the person who sends the money
- Seller (receiver) – the person who will receive the money
- Escrow agent (third party) – usually a bank or payment company that holds the money
The process works like this:
- The buyer sends money to the escrow account.
- The money stays safely in that account.
- Once the agreed conditions are fulfilled (such as delivery of goods or completion of service), the escrow agent releases the money to the seller.
This system ensures that both parties are protected.
Escrow Accounts in Payment Aggregators
In digital payments, companies such as payment aggregators and payment gateways collect payments from customers on behalf of merchants. The collected money is first kept in an escrow account maintained with a bank. From this account, the money is later transferred to the merchants.
This ensures: Transparency in transactions, Protection of customer funds and Better monitoring by regulators like RBI.
RBI Rules on Escrow Accounts
The Reserve Bank of India (RBI) has strict rules for escrow accounts used by payment aggregators.
Some important rules include:
- Payment aggregators must keep customer funds in a separate escrow account with a scheduled commercial bank.
- The money in the escrow account cannot be used for any other purpose.
- Only permitted transactions can be made from the escrow account.
If a company makes unauthorized or impermissible debits from the escrow account, it is considered a violation of RBI rules and can lead to penalties or regulatory action.
Let’s undertand with help of an Example
Suppose you buy a product online and pay through a payment gateway.
- Your payment goes first to the escrow account of the payment aggregator.
- After confirmation of the transaction, the money is transferred from the escrow account to the seller’s bank account.
RBI found that Cashfree had made certain impermissible debit transactions from the escrow account. Thus, a penalty was imposed by RBI on Cashfree.
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