Introduction:
TPAP, or Third Party Application Provider, refers to entities that offer applications or platforms that enable customers and merchants to initiate and receive UPI payments. Acting as intermediaries, these TPAPs connect the various participants involved in a transaction, ensuring its efficient execution. They play a vital role in the UPI ecosystem, facilitating millions of transactions daily.
As digital payments continue to grow, the significance of payment aggregators becomes more pronounced. These entities ensure seamless and secure transactions between customers, merchants, and banks. To function as a payment aggregator within India and be part of the Unified Payments Interface (UPI), it is crucial to acquire a Third Party Application Provider (TPAP) license from the National Payments Corporation of India (NPCI).
Service providers aiming to operate as TPAPs in the UPI ecosystem are required to obtain a TPAP license from NPCI. This license confirms adherence to NPCI's guidelines, ensuring the security and integrity of the UPI platform. It is a key requirement for TPAPs offering services to users, banks, and merchants.
Acquiring a TPAP license is fundamental for entities wishing to operate as payment aggregators in India and participate in the UPI network. This license allows them to deliver a seamless and secure payment experience to their customers. To successfully obtain the license, entities must carefully follow the registration process, meet the eligibility standards, and provide the necessary documentation. With the rapid expansion of digital payments in India, obtaining a TPAP license presents significant opportunities for growth in the evolving payments landscape.
The Role of National Payments Corporation of India:
The National Payments Corporation of India (NPCI) is responsible for developing and managing the Unified Payments Interface (UPI) platform. NPCI establishes the rules, regulations, and guidelines for all UPI participants, including TPAPs, ensuring the security, efficiency, and integrity of the UPI network.
Key responsibilities of NPCI include:
- Approval of participants:
NPCI oversees the approval process for Issuer Banks, PSP Banks, TPAPs, and Prepaid Payment Instrument (PPI) issuers to participate in the UPI ecosystem.
- Transaction processing and settlement:
NPCI manages the processing and settlement of UPI transactions, ensuring secure and smooth fund transfers.
- Dispute management:
NPCI provides a framework for resolving disputes related to UPI transactions, ensuring fair and transparent outcomes.
- Auditing and data access:
NPCI conducts audits of UPI participants and has access to their data, information, and systems as necessary.
- Regulatory compliance:
NPCI ensures that all UPI participants adhere to relevant laws, rules, regulations, and guidelines.
Eligibility for TPAP License
TPAP licenses are issued to entities that fulfill specific eligibility requirements established by NPCI. Although the criteria can vary, the following types of entities are generally eligible to apply for a TPAP license:
- Registered companies: Entities incorporated under the Companies Act, 2013, or other applicable legislation are eligible to apply for a TPAP license.
- Financial institutions: Banks, non-banking financial companies (NBFCs), and other licensed financial institutions are also eligible to seek a TPAP license.
- Payment aggregators: Entities that facilitate merchant transactions on UPI may require a TPAP license, subject to NPCI's guidelines.
Benefits of TPAP License:
Obtaining a TPAP license offers several benefits to service providers operating in the UPI ecosystem. Some of the key benefits include:
- Legitimacy and trust: A TPAP license from NPCI adds credibility and trustworthiness to a service provider, assuring users, banks, and merchants of their compliance with UPI regulations.
- Access to UPI platform: TPAPs with a license gain access to the UPI platform, enabling them to provide a wide range of services to end-users.
- Seamless integration: A TPAP license ensures seamless integration with banks and other UPI participants, facilitating efficient transactions.
- Dispute resolution: Licensed TPAPs can leverage NPCI's dispute management framework to resolve any conflicts or issues that may arise during transactions.
- Regulatory compliance: By obtaining a TPAP license, service providers demonstrate their commitment to complying with applicable laws, regulations, and guidelines.
Is TPAP License Mandatory?
While a TPAP license is not mandatory for every service provider, it is strongly recommended for entities operating within the UPI ecosystem. Licensed TPAPs gain several advantages, such as access to the UPI platform and enhanced credibility with users, banks, and merchants. Additionally, having a TPAP license ensures adherence to NPCI's regulations, safeguarding the security and integrity of the UPI system.
For payment aggregators, obtaining a TPAP license may be essential, as they facilitate merchant transactions on UPI. NPCI’s guidelines for TPAP licenses in this sector may differ, making it crucial for these entities to stay informed about the latest regulatory updates.
Registration Process for TPAP License?
The process for obtaining a TPAP license involves several essential steps that must be followed carefully to ensure a smooth and successful application. Here is a step-by-step guide to the TPAP license registration process:
- Eligibility Check:
The applicant must first verify that they meet the eligibility criteria established by NPCI for TPAP licenses.
- Preparation:
Before starting the registration process, gather all necessary information and documentation, including details about the entity, its directors, shareholders, and key personnel.
- Online Application:
Visit the official NPCI website and go to the TPAP license registration section. Complete the online application form with accurate and up-to-date information, including the entity’s legal name, registered address, contact details, and other relevant information.
- Document Submission:
Upload all required documents as specified by NPCI, such as the entity's certificate of incorporation, Memorandum and Articles of Association, KYC documents for directors and shareholders, financial statements, and any other necessary documentation.
- Application Review:
NPCI will review the application and submitted documents to ensure the entity meets the eligibility criteria and has provided all required information.
- Verification and Assessment:
NPCI may conduct a detailed verification and assessment of the entity’s background, financial stability, regulatory compliance, and other relevant factors to ensure the integrity and security of the UPI ecosystem.
- Approval and Issuance:
If the application is satisfactory and meets all requirements, NPCI will approve the TPAP license and issue it to the entity, allowing it to operate as a TPAP within the UPI ecosystem.
- Compliance and Ongoing Obligations:
After obtaining the TPAP license, the entity must comply with NPCI’s regulations, including regular reporting, adherence to security standards, and ongoing compliance with UPI guidelines.
Documents Required for TPAP License:
The documents needed for TPAP license registration may vary based on the entity's nature and regulatory requirements. However, some commonly required documents include:
- Certificate of Incorporation
- Memorandum and Articles of Association
- KYC documents for directors and shareholders
- Financial statements (either audited or self-certified)
- Business plan and operational details
- Security and privacy policies
- Any additional documents specified by NPCI
These documents must be accurate, current, and in line with the regulatory requirements established by NPCI.
Should Payment Aggregators opt for TPAP License?
Payment aggregators are essential in enabling digital payments by acting as intermediaries between merchants, customers, and banks, offering a simplified platform for transactions. Although obtaining a TPAP license is not mandatory for payment aggregators, it is strongly advised. With a TPAP license, payment aggregators can tap into the UPI ecosystem and offer their customers smooth UPI-based payment solutions.
Exemptions & Compliance
NPCI understands that sudden market disruptions should be avoided when a TPAP reaches the 30% market share cap. To manage this, NPCI allows for exemptions, enabling TPAPs to continue operations for up to six months. These exemptions are granted based on the merits of each case, and TPAPs must request them through their PSP Bank once certain thresholds are exceeded.
However, TPAPs must ensure compliance with the volume cap to prevent penalties and avoid disruption to their services. Failure to adhere to NPCI's regulations may result in penalties and other consequences as specified in the UPI Procedural Guidelines.
SOP for Market Share Cap for TPAP by NPCI:
A summarized version of the Standard Operating Procedure (SOP) for Market Share Cap for Third Party Application Providers (TPAP) by NPCI, including annexures:
Background and Objective: The UPI platform has become a preferred payment method, recording over 2 billion monthly transactions in November 2020. To diversify the UPI ecosystem, NPCI mandated a 30% volume cap for TPAPs. This SOP is designed to monitor the market share cap and take corrective actions in the event of a breach by a TPAP.
Methodology: The SOP controls the Volume Cap through user onboarding on the TPAP's platform. Provisions are in place to offer temporary exemptions if the cap is reached, to avoid sudden market disruptions.
TPAP Market Share Calculation: The SOP outlines factors for calculating TPAP's Market Share, including total UPI transaction volume, TPAP-specific transactions, on-us transactions, and pre-approved B2C and B2B transactions, with identifiers for each TPAP.
Monitoring UPI Transaction Threshold: The SOP monitors TPAPs' Volume Cap and issues alerts at different threshold levels based on their market share. There are three levels of alerts to keep the TPAPs informed.
Compliance for Existing TPAPs: Existing TPAPs exceeding the Volume Cap have two years to achieve compliance with the SOP through a phased approach.
Exemption: Upon breaching the threshold, TPAPs can request exemptions through their PSP Banks. These exemptions allow continued operation to some extent when the Volume Cap is reached.
Customer Communication: TPAPs and PSP Banks must communicate with new customers in cases of moderated or halted onboarding due to reaching the cap.
Non-Compliance Penalties: NPCI reserves the right to penalize TPAPs that do not comply with the Volume Cap regulations as outlined in the UPI Procedural Guidelines.
Reporting: The Volume Cap for TPAPs took effect on January 1, 2021. The calculated Total Volume of each TPAP is to be uniformly reported on the NPCI website.
SOP Validity and Modifications: Issued in line with the Volume Cap Circular, the SOP will be reviewed every six months to ensure its objectives are met while minimizing customer inconvenience.
On-us Transactions: On-us transactions are those not processed and settled through the UPI Central System. PSP Banks are required to report these to NPCI monthly, by the 3rd day of the following month.
