The Reserve Bank of India cracked down on unauthorised payments through business cards, saying that it has observed that one card network has arrangements to allow such payments through intermediaries.

“It has come to the notice that a card network has an arrangement that enables businesses to make card payments through certain intermediaries to entities that do not accept card payments.”

While the central bank did not name the card network, it said that “only one card network” has operationalised this arrangement in the country so far” and that the matter is under detailed examination.

India currently has five card networks: Visa, Mastercard, RuPay, American Express, and Diner’s Club. Visa had issued a statement on February 14 saying that it had been asked by the RBI to stop any such incremental transactions until further notice.

Under this arrangement, referred to as Business Payment Solution Providers (BPSP), an intermediary accepts commercial card payments from corporates and then remits the funds via IMPS, RTGS, or NEFT to non-card-accepting recipients.

“It was observed that this arrangement qualified as a payment system. Under the provisions of the Payment and Settlement Systems (PSS) Act, 2007, such a payment system requires authorisation under Section 4 of the PSS Act, which has not been obtained in the instant case. The activity was, therefore, without legal sanction,” RBI said.

businessline reported on February 14 that the central bank has asked certain card networks to halt BPSP payments due to concerns regarding the legitimacy and inadequacy of merchant KYC and uncertainty over the end use of funds.

In its statement, Visa said that it received communication from the RBI on February 8 in “an industry-wide request for information on the role of BPSPs in commercial and business payments.” It added that it is in discussions with RBI and ecosystem partners to ensure compliance.

The central bank said that such payment transactions raised concerns because the intermediary “pooled a large amount of funds into an account which is not a designated account under the PSS Act.” Further, the transactions processed did not comply with the originator and beneficiary information requirements as per the RBI’s directions on KYC.

Enkash, Kodo, and Happay card are some fintechs that act as intermediaries and provide, or have provided, BPSP facilities. However, the RBI did not name any specific intermediary in the circular. It also clarified that the action is against a certain type of payment and that RBI has not placed any restriction with respect to “normal usage of business credit cards.”

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