RBI asks Visa, Mastercard to pause commercial card-based business payments

According to a person directly familiar with the matter, the regulator’s concerns stem from these commercial card-linked transactions being done at merchant or vendor outlets that do not have an explicit authorisation from the RBI to accept such card payments. This person, who asked not be quoted, said that accepting such card payments without the regulator’s approval was in violation of the Payment and Settlement Systems Act, 2007. This person ruled out any linkage or fallout from the Paytm Payments Bank issue, where KYC concerns had come to light.

Commercial cards are offered by banks to corporates or businesses, as per RBI rules, and offer benefits such as enhanced credit limits and repayment windows, rewards, benefits and so on.

Typically corporates would use traditional banking channels like net banking or IMPS or RTGS to make payments to their vendors, or pay their electricity or rental bills etc. However, in the last few years, fintechs along with card networks have evolved models whereby corporates can use their commercial cards to pay such vendors or small merchants, and reap benefits of paying online and using their card rewards. Fintechs are the intermediaries who would disburse the payment to vendors or small businesses on behalf of a corporate that was using its commercial card to make such payments.

The issues arose when some fintechs were found to be disbursing payments to business outlets which were not authorised for accept such payments in the first place, leading to the regulator asking card networks to stop processing these payments, said one of the people quoted earlier.

An industry executive said, "whether the fintechs have done proper checks on the merchant they are disbursing payments to or not, and if that somehow is leading to KYC-AML (know-your-customer anti-money-laundering) rules violation, because the vendor or merchant at the other end is not properly verified through KYC- that could have been a concern," but he added that the regulator had not made the reason for the decision known, and this was merely the assumption some in the industry have made. This executive’s fintech is not involved in the BPSP business.

Another industry executive ventured that business models of commercial card aggregators like may be under RBI review, but all commercial card payments have not been blocked.

The move from RBI could impact fintechs such as EnKash and Paymate among others, that process such business-to-business or B2B vendor payments or transactions using commercial cards on behalf of corporate clients.

However, the overall impact on the ecosystem may not be too significant. Another person directly familiar with the matter told CNBC-TV18 that the total value of such commercial card linked transactions via fintechs on a monthly basis may be under ₹4,000 crores or ₹40 billion, compared to RTGS transactions of ₹135914.43 billion for the month of November 2023 for instance.

Visa confirmed the RBI notice, and added that this was an industry-wide issue, and not specific to Visa.

In response to CNBC-TV18’s query on the matter, a Visa spokesperson 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. That communication included direction that we hold all BPSP transactions in abeyance. It is important to note that BPSPs are regulated and licensed by the RBI under the PA PG (payment aggregator, payment gateway) 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."

Mastercard was yet to respond to CNBC-TV18’s query at the time of publishing this.