[Update] Mastercard Backed Instamojo Shuts Payments Aggregator Biz After RBI Returns Application

Mastercard-backed fintech startup Instamojo shut its payments aggregator business. The startup is overcoming this by partnering with third-party licensed aggregators, Instamojo told Inc42.

“On 27 September 2023, The Reserve Bank of India returned our application for the payment aggregator (PA) license owing to not meeting the eligibility criteria. The aggregator/ payouts function will now be undertaken in partnership with other licensed PAs while our payment gateway continues to be fully functional. We also have the window open to reapply for the PA license in the next financial year,” Akash Gehani, cofounder and CEO of Instamojo said in a statement shared with Inc42.

In compliance with this notification, Instamojo settled all the funds in its nodal accounts into its merchant accounts to mitigate any challenges with respect to payouts and refunds, Gehani added.

Instamojo claims to have safeguarded the interests of its 2 Mn customers by transferring their payment accounts to licensed PA partners. Despite a new KYC requirement, 90% of customers successfully completed the transition, it further claimed. Some merchants experienced temporary payment delays during the KYC process, but operations have now resumed seamlessly, according to Instamojo’s Gehani.

The development of Instamojo’s shutting of its payments aggregator business was first reported by The Morning Context.

Founded in 2012 by Sampad Swain, Akash Gehani and Aditya Sengupta, Instamojo is an ecommerce platform for independent businesses, direct-to-consumer (D2C) brands and micro, medium and small enterprises (MSMEs) that enable them to start, manage and grow their business online.

In early 2019, the startup raised INR 50 Cr as a part of its Series B funding round from Gunosy Capital, Japanese payments firm AnyPay and existing investors. It also counts Kalaari Capital and Blume Ventures among its investors.

Queries sent to Instamojo did not elicit any response till the filing of this article.

Introduced by the RBI in March 2020, the payment aggregator framework requires all payment gateway operators to obtain a license for acquiring merchants and implementing digital payment solutions.

Payment aggregators (PAs) facilitate merchants and ecommerce platforms in accepting payments by providing their technological infrastructure for streamlined online transactions. However, the licensing process, initiated three years ago, has become challenging and cumbersome procedure for payment solution providers.

Strict regulations from the central bank have resulted in numerous PA applications, including those from Paytm and LivQuik, remaining in a state of uncertainty. Even prominent names like MobiKwik’s Zaakpay faced delays and had to submit multiple applications before obtaining their licenses.

Earlier in February, RBI granted in-principal authorisation to 32 existing payment aggregators (PAs) to act as online PAs.

Amazon (Pay) India Pvt Ltd, Paymate India Ltd, Razorpay Software Pvt Ltd, Pine Labs Pvt Ltd and Zomato Payments Pvt Ltd were among the PAs that had been granted in-principle authorisation.

As per a report, the Indian payment gateways market is projected to grow to $2.68 Bn by 2027.

Update: November 15, 15:10 IST

The article has been revised to provide detailed clarification, particularly regarding the shutdown of the aggregator business. It also now incorporates responses from Instamojo, which were received subsequent to the original publication.