RBI instructs Visa and Mastercard to halt Commercial Card Payments
Following regulatory measures taken against Paytm, the Reserve Bank of India (RBI) has instructed card networks Visa and Mastercard to prohibit card-based commercial payments facilitated by payment service providers and businesses. Although the RBI has not formally disclosed the rationale behind the directive, fintech companies operating in the sector have indicated that such transactions occur at establishments lacking authorization to accept such payments. Numerous fintech firms purportedly enable customers to utilize their cards for settling tuition fees and rental expenses, despite not being authorized to accept card payments. Banking sources suggest that this practice may contravene the Payment and Settlement Systems Act 2007.
“We have been directed by the regulator to ensure that all Business Payment Service Provider (BPSP) transactions be kept in abeyance till further notice. Hence, we kindly ask that all BPSP merchants registered by yourselves with Visa be immediately suspended till advised by us to the contrary", Visa said in a communication to fintechs. "For avoidance of doubt, any transaction authorized prior to the communication would be settled in the ordinary course of business. We kindly ask that you send us a confirmation at the earliest that such merchants/merchant IDs have been blocked and transactions ceased. Failure to adhere to these instructions could result in regulatory sanction and non-compliance assessment under the Visa rules", Visa said.
According to fintech players, the RBI wants to ensure that fintech players and service providers are within the regulatory ambit and that no fraudulent or unauthorized transactions are occurring on the digital platform. “There could be KYC issues at a time when the central bank wants to ensure that all digital transactions are fully KYC compliant", said an official. As of January 31, the RBI prohibited Paytm from providing its essential services, such as accounts and wallets, effective from March. This action effectively hampers the company's operations, citing numerous KYC and other compliance issues.
