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RBI clarifies the move to halt business payments through commercial cards

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The Reserve Bank of India (RBI) issued a clarification on Wednesday regarding the decision to halt business payments through commercial cards. In a press release, the central bank stated that a card network had an arrangement permitting businesses to make card payments through “certain intermediaries” to entities that do not accept card payments. “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,” it added. The RBI observed that this arrangement qualified as a payment system, and needed authorization under Section 4 of the Payment and Settlement Systems (PSS) Act, 2007. And in such cases, this authorization was not obtained. Such activity raised concerns like pooling large amounts of funds into an account which is not authorized under the PSS Act. Also, the bank was concerned that transactions happening under such an arrangement did not adhere to the “originator and beneficiary information requirements, as stipulated under Master Direction on KYC issued by the Reserve Bank.” “As the matter is under detailed examination, the Card Network has been advised to keep all such arrangements under abeyance, till further orders. It is clarified that the Reserve Bank has not placed any restriction with respect to normal usage of business credit cards,” the bank added. Earlier, Visa and MasterCard had reached out to the central bank seeking clarification regarding the move. It is worth noting that businesses usually make business payments through the net banking systems, including RTGS. However, a few fintech companies, in partnership with the card companies, began facilitating payments through commercial cards. These payments could be for purposes such as payment to suppliers or vendors. Some companies operating in this space are Enkash and Paymate. Paymate, which has in-principle approval from the RBI for a payment aggregator license, told the Economic Times that they are making alternate arrangements compliant with regulatory norms to ensure seamless payments on their platform. “…Such regulatory hurdles can be avoided by adhering to the regulator’s rules and guidelines through innovative KYC solutions. It becomes imperative for financial institutions and fintech players to ensure that all financial transactions taking place are within the regulatory ambit and that no fraudulent or unauthorized transactions are occurring on the digital platform while maintaining the security posture,” Signzy CEO and cofounder Ankit Ratan said in a statement.