RBI swipes left on commercial credit cards

Commercial cards issued by banks are used to make payments to vendors or merchants.
Commercial cards issued by banks are used to make payments to vendors or merchants.


Businesses typically pay their vendors by bank transfers or commercial credit cards called Business Payment Service Provider (BPSP) transactions, which are now suspended by RBI

The Reserve Bank of India (RBI) has halted businesses from paying each other via credit cards, by ordering card networks Visa and Mastercard to stop all such payments.

Businesses typically pay their vendors by bank transfers or commercial credit cards, sometimes mediated by fintechs. The latter are called Business Payment Service Provider (BPSP) transactions, now suspended by RBI.

While the exact reason for the abrupt move is not known, Arpit Ratan, co-founder and chief business officer of Signzy, a digital banking infrastructure provider, said that RBI’s concern seems to come from the fact that certain recipients of card transactions may not be registered merchants, something that is not allowed by the KYC regime. KYC stands for know your customer.

“In case of peer-to-peer transactions, cards were never allowed, and even today, you cannot pay some individual by your card. On the other hand, business-to-business payments were to be made through fund transfers like RTGS, NEFT, cheques, etc," said Ratan. Cards are meant to be used at physical and online merchants, and there is an entire KYC process to follow when merchants are registered and onboarded, he added.

A person aware of the development said the RBI is likely looking at the extent of use of such products.

Commercial cards issued by banks are used to make payments to vendors or merchants. Before fintechs entered with new products, companies used to make individual payments to their vendors and suppliers on a daily, weekly or even monthly basis through traditional banking channels. Then, the business payment service providers took on the job of distributing these payments on behalf of the company.

Banks issue cards based on the KYC details of companies, but there is no such check on the merchants who receive these payments, the second person cited above added.

According to a third official, a senior private sector banker, transactions may not be affected as corporates would shift these card payments to alternate banking channels like Real Time Gross Settlement (RTGS) or National Electronic Fund Transfer (NEFT).

The central bank likely suspects that some entities use the BPSP route to transfer amounts to individuals without KYC instead of merchants, a fourth person said.

While the circular refers to commercial cards, there are retail use cases too. For instance, an individual cannot pay another using his credit or debit card, but has to use fund transfers or the ubiquitous UPI (unified payments interface). However, some fintechs were allowing such payments where a person would pay rent through their credit card to a fintech, which would then send it to the landlord. In this case, the landlord is not a registered merchant and therefore cannot accept card payments.

“Banks have not received any directions from RBI on this, but it is soon expected since the cards being used to make commercial payments belong to banks," said the banker cited above.

A spokesperson for Visa said in a statement that Visa received a communication from the RBI on 8 February, in what appears to be an industry-wide request for information on the role of business payment solution providers (BPSPs) in commercial and business payments. "That communication included direction that we hold all BPSP transactions in abeyance," the spokesperson said.

“It is important to note that BPSPs are regulated and licensed by the RBI under the PA PG guidelines. Visa is proactively engaged and continues to be in discussions with the RBI and our ecosystem partners to ensure compliance. If you have further questions, those may be better directed to the BPSPs."

Emails sent to RBI and Mastercard remained unanswered.

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