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The Reserve Bank of India (RBI) Thursday said it has directed a card network to stop an unauthorised arrangement for payments through business cards.The central bank did not name the network.
“It has come to the notice of Reserve Bank of India that a Card Network had an arrangement that enables businesses to make card payments through certain intermediaries, to entities that do not accept card payments,” RBI said in a release.
The regulator said only one card network has operationalised this arrangement in the country so far.
It said as the matter is under detailed examination, the card network has been advised to keep all such arrangements under abeyance till further orders.
The RBI’s clarification comes a day after it was reported that the RBI has asked card networks Visa and Mastercard to bar card-based commercial payments through payment service providers and companies.
On Wednesday, one of the card networks, Visa, in a statement to fintechs said: “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.”
The RBI further said as per the arrangement, the intermediary accepts card payments from corporates for their commercial payments and then remits the funds via IMPS (Immediate Payment Service)/RTGS (Real-Time Gross Settlement)/NEFT (National Electronic Fund Transfer) to non-card accepting recipients.
It was observed that this arrangement qualified as a payment system. Under the provisions of Payment and Settlement Systems (PSS) Act, 2007, such a payment system requires authorization under Section 4 of PSS Act, which has not been obtained in the instant case.
“The activity was, therefore, without legal sanction,” it said.
The RBI said that there were concerns that the intermediary in such an arrangement pooled large amount of funds into an account which is not a designated account under PSS Act.
Also, transactions processed under such arrangement did not comply with the originator and beneficiary information requirements, as stipulated under master direction on KYC issued by the Reserve Bank.
The RBI also clarified that it has not placed any restriction with respect to normal usage of business credit cards.
