After Paytm Bank, RBI cracks down on card network for payments via intermediaries

Amid reports about the Reserve Bank of India (RBI) directing top card network companies to put commercial card-based business payments in abeyance, the central bank in its official order has directed “a company” to stop all card-based payments made via payments intermediaries to entities that don't accept card payments.

Without naming, the central bank in its order says its decision came after it was noticed that a card network had an arrangement that enabled businesses to make “card payments” via certain intermediaries to entities that don’t accept card payments.

“The card network has been advised to keep all such arrangements under abeyance, till further orders. It is clarified that the Reserve Bank has not placed any restriction with respect to the normal usage of business credit cards,” the RBI order says.

Under this arrangement, the intermediary accepts card payments from corporates for commercial payments and then remits the funds via IMPS/RTGS/NEFT to non-card-accepting recipients, says the RBI.

The RBI's latest diktat means says the entire business of BSPS does not have a "legal sanction", which means commercial credit cards can't be used to pay for merchants who don't have the requisite infrastructure to accept it. And it can only happen after getting a licence under the RBI’s Payment and Settlement Systems Act of 2007.

The RBI’s closer scrutiny revealed 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,” says the RBI.

On the contrary, the central bank says, the arrangement has raised some concerns. “The intermediary in the above arrangement pooled a large amount of funds into an account, which is not a designated account under the PSS Act. Transactions processed under this arrangement did not comply with the originator and beneficiary information requirements, as stipulated under the Master Direction on KYC issued by the Reserve Bank,” says the RBI.

It said as per its information, only one card network has operationalised this arrangement in the country so far. The apex bank, however, didn’t reveal the identity of the entity since the matter is under detailed examination.

Earlier on Wednesday, reports suggested that the central bank had asked a big card network entity to halt all business payment solution provider transactions till further notice. It reportedly said the RBI wants it to clarify "the role of business payment solution providers (BPSPs) in commercial and business payments".

The latest order from the RBI comes after its stringent action against fintech major Paytm’s payment services arm, Paytm Payments Bank (PPBL). It has directed Paytm Payments Bank to stop on-boarding new customers and barred the company from taking further deposits, or credit transactions or top-ups in any customer accounts, prepaid instruments, wallets, FASTags, NCMC cards, etc. after February 29, 2024.