Foreign Exchange

The Reserve Bank of India (RBI) has given the green light for Cashfree Payments‘ latest cross-border payments platform that enables the purchase of listed shares on foreign exchanges.

The RBI’s approval follows the payments and API banking solutions company’s successful participation in the Bank’s second cohort of a regulatory sandbox on cross-border payments.

The offering is set to enable Indian fintech companies to offer the purchase of shares, exchange-traded funds (ETF) units and other assets listed on foreign exchanges via UPI/net banking as a feature to Indian investors.

The cross-border investments will fall under the ambit of RBI’s ‘liberalised remittance scheme’ (LRS). As per the RBI’s website:

‘Under the LRS, all resident individuals, including minors, are allowed to freely remit up to $2,50,000 per financial year (April – March) for any permissible current or capital account transaction or a combination of both.

The scheme was introduced on 4 February 2004, with a limit of $25,000. The LRS limit has been revised in stages consistent with prevailing macro and micro economic conditions.’

One of the most tedious steps for Indians looking to invest in foreign stocks has been funding their overseas accounts. Traditionally, this process needs filling up A2 forms (an application of declaration), paying high fixed fees, and even visiting a bank branch in many cases.

The process of payments via UPI, net banking and LRS compliance is now fully digital thanks to the company’s latest offering, which will allow investors to invest from a minimum of ₹1,000 ($12.51). The solution also incorporates savings on foreign exchange (FX) fees and faster settlements for access to funds.

The offering is supported by an app that’s integrated with the company. Investors only need to complete what the company describes as ‘basic’ know your consumer (KYC) to begin transferring in Indian currency.

The company will then convert this transferred amount into foreign currency, like USD, and remit it to the foreign broker, allowing investors to then complete purchases for international stocks.

While US stocks, mostly of large tech and pharma companies, are the most popular with Indian investors, Cashfree Payments is allegedly working with multiple Indian fintech platforms looking to offer cross-border investing as a feature.

Reeju Datta

Speaking on the RBI’s approval, the company’s co-founder, Reeju Datta, explains how the platform intends to make investing in foreign stocks “a lot simpler and convenient, allowing retail investors to make payments via local payment methods.”

In September 2021, eight entities including Cashfree Payments were selected for the test phase of RBI’s second cohort.

Cashfree Payments’ proposition was evaluated on mutually agreed upon test scenarios and expected outcomes on several parameters, such as innovation in cross-border payments, ability to transform the cross-border payments landscape, and leveraging technology to come up with a cost-effective, secure, and transparent system.

With the announcement of the exit of the second cohort, the product has been found viable within the boundary conditions defined during testing under the regulatory sandbox.

“The product was evaluated on varying parameters,” Datta continues, “and clearing the evaluation further reiterates the resilience and agility that is a trademark of the Cashfree Payments systems.”

The product can be considered for adoption by regulated entities subject to compliance with applicable regulatory requirements.

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