Payment gateways and Chinese loan apps

The increasing digital lending by unregistered and fraudulent apps has been a major concern that has had the government, the Reserve Bank of India (RBI) as well as the Enforcement Directorate (ED) in a bind. The issue began back in 2020 when instances of high-handed loan recovery methods by these apps that lend to unsuspecting customers at high rates pushed many to suicide.

The Enforcement Directorate had conducted raids at Bengaluru premises of online payment gateways like Razorpay, Paytm and Cashfree Payments in connection with "illegal" instant loan apps "controlled" by Chinese persons. The culprits were generating proceeds of crime through various accounts with payment gateways. This comes, after several complaints of extortion by people who took loans through such apps.

The funding and origin for these apps have been traced to China and have also led to investigations by the Serious Fraud Investigation Office, Intelligence Bureau and even R&AW. In an investigation, the apps are backed by registered fintech companies that are in turn backed by shell companies, numbering 100 in some instances seizing Rs 17 Cr in merchant IDs and bank accounts belonging to these apps.

Hundreds of companies were found operating from a single address in Delhi-NCR and residential areas of Bengaluru. The agency alleges that these entities were controlled or operated by the suspects based in China. They used forged documents of Indian nationals and made them dummy directors.

"Some of our merchants were being investigated by law enforcement about a year-and-a-half back. As part of the ongoing investigation, the authorities requested additional information to help with the investigation," a Razorpay spokesperson said.

At the same time the spokesperson of Cashfree Payments said, we have fully cooperated and shared KYC and other details. The authorities were satisfied by our due diligence process. The operations and on-boarding processes adhere to the PMLA and KYC directions, and we will continue to do so.

The entities under investigation were generating proceeds of crime through various merchant IDs/accounts held with payment gateways/banks and they are also not operating from the addresses given on the ministry of corporate affairs website/registered address, the agency said. The ED probe found these companies had "fake" addresses.

Dr. Deepak Kumar Sahu, President & CEO, VARINDIA