INDIA Law and Practice Contributed by: Shilpa Mankar Ahluwalia, Himanshu Malhotra and Purva Anand, Shardul Amarchand Mangaldas & Co
effected, the DPDP Act will overhaul the existing data protection framework. (see 1.1 Evolution of the Fintech Market ). Separately, the RBI has also issued a circular in April 2018 (Data Localisation Circular), which mandates that all payment data be stored on servers located in India. While such data can be transferred outside of India for processing, it must be returned to India within 24 hours. Note that the Data Localisation Circular only pertains to payment data. There are no generalised data localisation requirements under the Current Data Privacy Framework or under the DPDP Act. 2.3 Compensation Models Compensation models across key product offer - ings typically take the following form: • PPIs/debit cards/credit cards/UPI, all charge Merchant Discount Rate (MDR) – ie, charges payable by the merchant to the payment acquirer and/or the card network/payment system operator (PSO). For cards, transaction interchange fee, interest and float income and card issuances act as additional income lines. • Digital lenders charge loan processing fees and interest from their customers, which are usually linked to the volume and tenor of the loan. Digital lenders can also levy additional penal charges for defaults, in a manner that is reasonable and only for material non-compli - ances. Penal charges must not be used as a revenue enhancement tool. • PAs/PGs charge the e-commerce market - places and merchants for their payment aggregation services and/or technological support provided. These charges are in some instances contractually passed on to the customer transacting on the e-commerce or merchant platform.
To promote indigenous payment instruments, GOI has mandated zero MDR for certain trans - actions. This could impact the cost competitive - ness and revenue flows of foreign fintech play - ers, in comparison with domestic fintech players. The overarching regulatory requirement sur - rounding disclosures in connection with these compensation models mandates that: • REs (such as banks and NBFCs) adopt “fair practices code” , to be made available on their websites (in English as well as in the vernacu - lar language), setting out the process for loan applications and the key terms and condi - tions associated with the lending product (including all charges, fees and interest rates); • all lending institutions are required provide “key fact statement” in a standardised format for loan processing; such standardised format must specify the annualised percentage rate for the lending product (which is inclusive of all charges, fees and interest rates in connec - tion with the credit product offered by them); and • REs (such as PPI Issuers, payment intermedi - aries, banks, NBFCs) adopt a suitable CGRM and designate “nodal officers” to address customer complaints, so as to ensure fairness in operation of such products, including the compensation models employed by them. 2.4 Variations Between the Regulation of Fintech and Legacy Players Taking a holistic view of the regulatory frame - work (see 2.2 Regulatory Regime ), it appears to treat both new fintech players and established players (like banks) impartially. However, there is a significant discrepancy when it comes to banks’ ability to conduct Aadhaar- based E-KYC checks for customer onboarding,
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