RBI asks Visa and Mastercard to suspend card-based commercial payment services

Following strict action against Sharma's Paytm Payments Bank, The Reserve Bank of India (RBI) has reportedly issued a directive to major card networks, Visa and Mastercard, to stop facilitating card-based commercial payments made by corporations and small enterprises. 

The move, which was first reported by Arti Singh, comes in the wake of concerns over transactions being conducted at outlets not authorized to accept card payments, particularly for commercial activities like vendor payments, tuition, and rental payments.

The underlying issue seems to be the flow of money to non-KYC-compliant merchants, raising red flags for the regulator, several media reports claimed.

The scope of the directive

The RBI's instruction specifically targets payments routed through Business Payment Service Providers (BPSPs), which facilitate transactions to merchants typically not authorized to accept card payments.

The reported decision impacts a niche segment of the payment ecosystem, focusing on commercial payments made through third-party fintech firms. Regular corporate card transactions remain unaffected, ensuring that the directive is narrowly tailored to address specific regulatory concerns.

What did Visa and Mastercard say?

While there are no official statements from either Visa or Mastercard, Arti Singh, in a post on X, wrote that Visa has directed its fintech partners asking them to stop Business Payment Service Provider (BPSP) transactions.  

"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/merchant ids registered by yourselves with Visa be immediately suspended till advised by us to the contrary. 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 dealingsceased. Failure to adhere to these instructions could result in regulatory sanction and non-compliance assessment under the Visa rules," the message is quoted as saying.

The underlying concerns

The RBI's concerns seem to stem from a combination of factors, including the potential for unauthorized transactions and the need for stringent KYC compliance in digital transactions. The directive follows incidents of non-compliance and aims to tighten the regulatory framework to prevent misuse of the payment systems.

Several Industry insiders suggest that miscommunication or misrepresentation of transaction purposes to the RBI may have contributed to the decision, indicating a need for clearer guidelines and understanding between fintech firms and the regulator.

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