RBI Directs Visa and Mastercard: Halt Card-Based Commercial Payments

Attention India
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Regulatory Intervention: RBI’s Directive to Visa and Mastercard

The Reserve Bank of India (RBI) has issued directives to international payments giants Visa and Mastercard, instructing them to cease card-based commercial payments conducted by both small and large businesses. This move comes as a response to concerns regarding Know Your Customer (KYC) compliance.

Visa’s Response and Awaited Reaction from Mastercard

Visa has acknowledged receiving communication from the regulator on February 8 regarding the directive. However, the response from Mastercard is still awaited. The development unfolds amidst the RBI’s recent regulatory actions against Paytm Payments Bank, highlighting the central bank’s increasing scrutiny of payment service providers.

Concerns Over KYC Compliance

According to industry sources, the RBI’s directions to Visa and Mastercard stem from apprehensions regarding non-compliance with KYC norms. Transactions conducted at business outlets unauthorized to accept commercial card payments have been instructed to be temporarily halted, indicating the severity of the regulatory concerns.

Visa’s Statement on RBI’s Communication

In response to the RBI’s directive, a spokesperson from Visa India conveyed that they had received communication from the RBI on February 8. The communication appears to be an industry-wide request for information on the role of Business Payment Solution Providers (BPSPs) in commercial and business payments. Visa stated that the communication included directions to hold all BPSP transactions in abeyance. Additionally, Visa emphasized that BPSPs are regulated and licensed by the RBI under the PA-PG guidelines and assured proactive engagement with the RBI and ecosystem partners to ensure compliance. However, Visa also noted that clarity on the matter could be provided by BPSPs rather than the payment processors themselves.

Impact on Fintech Players and Business Payments

Industry sources reveal that some fintech companies have also received directives from the RBI to suspend business payments made via commercial cards until further notice. There are concerns that this suspension may affect various types of payments, including rental and tuition fee payments. Fintech platforms such as Cred, Paytm, and Nobroker currently facilitate such transactions using commercial, credit, and debit cards. The temporary halt on these facilities raises uncertainties about the continuity of certain financial services.

Shift in Business Payment Methods

Traditionally, companies conduct their business payments through net banking, NEFT, or RTGS, especially for large transfers. However, the 24×7 availability of these modes contrasts with the temporary suspension of card-based commercial payments, leading to potential disruptions in business operations. Fintech players like Enkash and Paymate, which enable payments made through commercial cards for business purposes such as vendor and supplier payments, may also face operational challenges due to regulatory intervention.

Conclusion: Navigating Regulatory Scrutiny in Payment Ecosystem

The RBI’s directive to Visa and Mastercard to halt card-based commercial payments underscores the regulatory challenges and evolving compliance landscape in India’s payment ecosystem. As regulatory scrutiny intensifies, payment service providers must prioritize adherence to KYC norms and collaborate closely with regulators to ensure compliance while minimizing disruptions to essential financial services. The outcome of this regulatory intervention will not only shape the future trajectory of payment innovations but also influence the broader regulatory framework governing financial transactions in the country.

-Prisha Jaiswal

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