RBI explains pause in commercial card transactions for businesses
- ByStartupStory | February 17, 2024
The Reserve Bank of India (RBI) provided clarification on Wednesday regarding the decision to cease business payments via commercial cards.
In a press release, the central bank explained that a card network had a setup allowing businesses to conduct card payments through “certain intermediaries” to entities not accepting card payments.
“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.
The RBI noted that this arrangement constituted a payment system and required authorization under Section 4 of the Payment and Settlement Systems (PSS) Act, 2007, which had not been obtained in these cases.
Concerns were raised regarding the pooling of substantial funds into an account not authorized under the PSS Act. Additionally, transactions under this arrangement did not comply with the “originator and beneficiary information requirements” stipulated in the Master Direction on KYC issued by the Reserve Bank.
Visa and MasterCard had sought clarification from the central bank regarding this move prior to the announcement.
Businesses typically utilize net banking systems, including RTGS, for business payments. However, certain fintech companies, in collaboration with card companies, began facilitating payments through commercial cards, which could be for purposes such as supplier or vendor payments.
“…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,” said Signzy CEO and cofounder Ankit Ratan in a statement.
Paymate, with in-principle approval from the RBI for a payment aggregator license, stated they are making alternate arrangements compliant with regulatory norms to ensure seamless payments on their platform.
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