RBI prohibits Visa, Mastercard from commercial card transactions

Days after invoking regulatory action on fintech Paytm, the Reserve Bank of India has asked Mastercard and Visa to suspend commercial payments via cards facilitated by business payment solution providers.

BPSP allows the corporates to transfer money to small vendors, who don't have the facility of payment terminals to accept card payments.

As per Financial Express, the RBI in a letter dated February 8 had directed these firms to suspend all business payment solution providers’ (BPSP) transactions till further notice.

RBI bars commercial card transaction

As per Economic Times, transactions being done at other business outlets who might not be authorised to accept card payments have been temporarily halted. The intention behind this RBI directive is not clear.

However, the Economic Times report quoting sources said that flow of money through the card route towards non-KYC-ed merchants is something that has irked the regulator. It further mentioned that even though the merchants' bank accounts are KYC-ed they are mostly not authorised to accept card payments as merchants.

Also Read: ED starts a preliminary inquiry into Paytm Payments Bank: Reports

Meanwhile, the Indian Express has reported that many fintech firms are allowing customers to use cards to pay for tuition fees and rentals even though these fintechs are not authorised to accept payments through cards. This may be a violation of the Payment and Settlement Systems Act, 2007

“We have been directed by the regulator to ensure that all Business Payment Service Provider (BPSP) transactions be kept in abeyance till further notice. Hence, we kindly ask that all BPSP merchants registered by yourselves with Visa be immediately suspended till advised by us to the contrary,” Visa said in a communication to fintechs. “For avoidance of doubt, any transaction authorized prior to the communication would be settled in the ordinary course of business. We kindly ask that you send us a confirmation at the earliest that such merchants/merchant IDs have been blocked and transactions ceased. Failure to adhere to these instructions could result in regulatory sanction and non- compliance assessment under the Visa rules,” Visa said.

Most of the businesses usually make payment via net banking or real time gross settlement (RTGS). However, as per Financial Express, some fintechs like Enkash, Karbon, and Paymate facilitate payments through cards for purposes like payments to suppliers and vendors. The total monthly transaction size of such payments is in excess of Rs 20,000 crore.

Apart from this there are other concerns like fraud or money laundering in some high value transactions, doubts over the genuineness of the end-user and the possibility of the commercial cards being utilised to make utility payments.

A commercial credit card can only be used for specific purposes and business payments. The card is issued by the current account holding bank of the corporation. Of late, many banks have partnered with fintechs for issuances of such cards.