Amid reports of the Reserve Bank of India (RBI) directing leading card network companies to stop commercial card-based business payments, the central bank in its official order has directed “an entity” to stop all card-based payments through payment intermediaries to businesses that do not accept card payments .
Without naming names, the central bank states in its order that its decision was made after it was discovered that a card network had entered into an agreement that allowed companies to make “card payments” through certain intermediaries to companies that do not accept card payments .
“The card network has been advised to put all such arrangements on hold until further notice. It is clarified that the Reserve Bank has not imposed any restrictions on the normal use of business credit cards,” the RBI order said.
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Under this arrangement, the intermediary accepts card payments from companies for commercial payments and then transfers the funds through IMPS/RTGS/NEFT to recipients who do not accept cards, RBI said.
The RBI's latest diktat states that there is no “legal sanction” for BSPS' entire business, meaning commercial credit cards cannot be used to pay merchants that do not have the necessary infrastructure to accept them. And this can only be done after obtaining a license under the Payment and Settlement Systems Act, 2007 from RBI.
Closer examination by the RBI revealed that this agreement was a payment system. “As per the provisions of the Payment and Settlement Systems (PSS) Act, 2007, such a payment system requires approval under Section 4 of the PSS Act, which was not obtained in the present case. “The activity was therefore carried out without any legal sanction,” the RBI said.
On the contrary, the central bank said the agreement had raised some concerns. “The intermediary in the above agreement pooled a large amount of money into an account which is not a designated account under the PSS Act. “Transactions processed under this agreement did not comply with the requirements for information about the originator and the beneficiary as stipulated in the master instruction on KYC issued by the Reserve Bank,” the RBI said.
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According to its own information, only one card network has so far implemented this agreement in the country. However, the apex bank did not disclose the identity of the company as the matter is currently under detailed investigation.
Earlier on Wednesday, reports suggested that the central bank had asked a major card network company to halt all transactions from business payment solution providers until further notice. The RBI reportedly wants to clarify “the role of Business Payment Solution Providers (BPSPs) in commercial and business payments”.
The RBI's latest order comes after its strict action against fintech major Paytm's payment services arm, Paytm Payments Bank (PPBL). It has directed Paytm Payments Bank to stop onboarding new customers and has banned the company from making any further deposits, credit transactions or recharges on customer accounts, prepaid instruments, wallets, FASTags, NCMC cards etc after February 29. 2024.
