India: Payment Companies perplexed on data localization

September 6, 2018

Source: www.rbi.org.in

The increased level of technological advancement can be witnessed from the fact that most of the transactions which were carried out manually or with much effort have now been switched with readily available and user friendly electronic equipments. Likewise, there has been development of the banking industry (also referred to as “payment companies”) which have resorted to the e-media. This simplified modern payment mechanism has allowed the people to purchase nearly all available goods/ services at the click of a button. Considering the sensitivity of the nature of the transactions involving money, such systems necessitate adoption of best safety and security measures on a continuous basis.

RBI regulations for E-payments

The Reserve Bank of India (hereinafter referred to as “RBI”), vide its notification dated April 6, 2018[1] imposed data localization (hereinafter referred to as “RBI regulation”). The RBI regulation requires all system providers to ensure that the entire data including the complete transaction details and information regarding the payment instruction relating to payment systems operated by them, are stored in a system only in India till October 15, 2018.

RBI introduced the said RBI regulation with a view to have unfettered supervisory access to data stored with these system providers as also with their service providers / intermediaries/ third party vendors and other entities in the payment ecosystem for better monitoring of the payment transactions in India.

Hurdles to the International Payment Companies

The challenge posed by the RBI regulation to foreign payment companies operating in India are that these entities have no servers or data centres in India. Setting up of such servers in India and data centres creation would be both expensive and time-consuming. Also, in order to route the information collected and sent to the foreign countries would raise the administrative cost and compliance burden for such companies.

Union Government’s permission

The Union Government, is open to allowing companies to store their data outside the country while keeping a copy in India.

Conclusion

In view of the present scenario where ambiguity persists owing to RBI regulations on one hand and Union Government’s policies on the other, revised notifications from RBI regarding data localization by the payment companies are awaited before the expiry of the deadline provided in the RBI regulation.[2]

[1] https://rbidocs.rbi.org.in/rdocs/notification/PDFs/153PAYMENTEC233862ECC4424893C558DB75B3E2BC.PDF

[2] https://economictimes.indiatimes.com/small-biz/startups/newsbuzz/global-payment-firms-may-miss-rbis-data-deadline/articleshow/65395203.cms

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