RBI restricts card network's business payment transactions, says no curb on normal business card usage

"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,” RBI said in a public release on its website on Thursday.

CNBC-TV18 had reported that fintechs acted as intermediaries to process such transactions via commercial card payments to business units, which was in violation of the PSS Act as the vendors or business units at the receiving end were not authorised to collect such card payments. EnKash and Paymate are understood to be among the fintechs that process such payments for corporates.

The RBI said that such arrangements raised concerns that the intermediary pooled a large amount of funds into an account that is not a designated account under the PSS Act.

“Transactions processed under this arrangement did not comply with the originator and beneficiary information requirements, as stipulated under Master Direction on KYC issued by the Reserve Bank,” the regulator said in the press release.

Visa in its statement to CNBC-TV18 on Thursday, said, “Visa received a communication from the RBI on Thursday, February 8, 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.”

However, the regulator stated that only one card network had such an arrangement, without naming the network. RBI said, "as per information available, only one card network has operationalised this arrangement in the country so far.”

The RBI also clarified that the restriction was limited to an entity for a specific transaction and there was no restriction on the normal use of business or commercial cards per se.

“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 RBI said in its release.