The Reserve Bank of India on Thursday said that card-based business-to-business payments made through payment intermediaries have been stopped since they violated the Payment and Settlement Systems Act, 2007.
The banking regulator said certain commercial payments were being routed through third-party intermediaries, which did not comply with its payment and customer identification rules.
The central bank mentioned that only one card network offers this service currently, without naming them.
On Wednesday it was reported that RBI had directed global payment giants Visa and Mastercard to suspend card-based commercial transactions by both small and large businesses due to mounting apprehensions over Know Your Customer (KYC) compliance. Visa confirmed receipt of the regulatory communication dated February 8.
In its statement today, the RBI said that as the matter is under detailed examination, the card network has been advised to keep all such arrangements under abeyance, till further orders.
While RBI did not mention the card network, Moneycontrol reported that the central bank has put bars on Visa's BPSP solution.
BPSP or business payment solution provider was established in 2017 to provide a solution for small businesses to accept card payments without requiring a physical card terminal. Prior to this solution, these businesses relied on corporate RTGS and NEFT account transfers, which were debit transactions. BPSP introduced the ability to process credit payments for these businesses.
The RBI said under BSPS, the intermediary accepts card payments from corporates for their commercial payments and then remits the funds via IMPS/RTGS/NEFT to non-card accepting recipients. This arrangement was without specific legal sanction from RBI.
"On closer scrutiny, it was observed that this arrangement qualified as a payment system. Under the provisions of Payment and Settlement Systems (PSS) Act, 2007, such a payment system requires authorisation under Section 4 of PSS Act, which has not been obtained in the instant case. The activity was, therefore, without legal sanction," the statement issued by the central bank said.
In an official statement on February 14, Visa said that BPSPs are regulated and licensed by the RBI under the PA/PG guidelines.
RBI is mainly concerned that the intermediary in the mentioned arrangement has consolidated a significant amount of funds into an account that is not designated under the PSS Act. Interestingly, the fintech companies operating the business possess a Payment Aggregator license and are regulated by RBI's guidelines for PAs.
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