RBI Asks One Card Network To Halt Commercial Card Payments Amid Regulatory Concerns

Amid regulatory actions against Paytm Payments Bank, the Reserve Bank of India (RBI) now has taken another significant step to regulate business payment transactions via commercial cards. On Thursday (February 15), the RBI announced measures to restrict a card network from facilitating such transactions to non-card accepting recipients without proper legal authorisation from the regulator.

While the central bank did not explicitly name the card network in question, it stated that it had observed an arrangement allowing businesses to conduct card payments through specific intermediaries to entities that do not typically accept card payments.

According to CNBC-TV18, the affected entity was VISA. The ban appears to be a response to transactions being facilitated to business units lacking authorisation to accept card payments.

The RBI expressed concerns over these arrangements, highlighting the pooling of funds into accounts not designated under the Payment and Settlement Systems (PSS) Act. Additionally, the RBI noted that transactions processed under this arrangement failed to comply with the originator and beneficiary information requirements outlined in the Master Direction on Know Your Customer (KYC) issued by the regulator.

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“Under this arrangement, the intermediary accepts card payments from corporates for their commercial payments and then remits the funds via IMPS/RTGS/NEFT to non-card accepting recipients. On closer scrutiny, it was observed that this arrangement qualified as a payment system. Under the provisions of the Payment and Settlement Systems (PSS) Act, 2007, such payment system requires authorisation under Section 4 of the PSS Act, which has not been obtained in the instant case. The activity was, therefore, without legal sanction,” the RBI said in a public release on its website on Thursday.

This development underscores the RBI’s commitment to ensuring compliance and transparency in the financial sector, particularly concerning card-based transactions. The regulatory actions aim to safeguard the integrity of payment systems and prevent potential risks associated with unauthorized transactions.