In a surprising move, the Reserve Bank of India (RBI) has directed card networks such as Visa and Mastercard to halt card-based commercial payments made by corporations and small enterprises.
Transactions carried out at possible unauthorized business outlets accepting card payments have been temporarily suspended, according to industry sources.
While the exact reason behind this directive is unclear, it is believed that the regulator is concerned about the flow of money through non-KYC-ed merchants who are not authorized to accept card payments, states an ET report.
A founder of a fintech startup, who wishes to remain anonymous, revealed that fintechs operating in this sector have been instructed to halt business payments made by commercial cards until further notice. The founder also mentioned that rental and tuition payments could be affected by this move, prompting some fintechs to consider suspending those transactions as well. Apps like Cred, Paytm, and NoBroker allow consumers to make rental payments through their cards.
Queries sent to Visa and Mastercard have not yet received a response.
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Typically, businesses make payments through net banking or bulk transfers managed by the RBI, such as RTGS (Real Time Gross Settlements). Card payments are not commonly used in this space, except for fintechs and card networks that have developed a process for paying business vendors through cards. Fintechs like Enkash and Paymate facilitate payments made through commercial cards for business needs, such as vendor and supplier payments.
Ajay Adiseshann, the CEO of Paymate, a major player in the business payments space backed by Visa, confirmed that the instruction came from the regulator to card networks, who then informed the industry. Adiseshann assured that while they have temporarily paused their operations in compliance with the guidelines, they have made alternative arrangements to ensure that business payments are not disrupted.
Although the industry is taken aback by this move, the exact reason for the regulatory action remains unknown. Some speculate that it may be related to the payment aggregator guidelines
If the card networks were working with players who have not received the in-principle approval from the RBI for the payment aggregator license, it could be a regulatory issue.
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Others believe that the scrutiny may be due to fintech platforms allowing consumers to use their cards for payment of tuition fees and rentals. Since these users are not authorized to accept card payments, it could be seen as a means to cash out from debit cards without following the proper directives.
