Business Standard

RBI restrains commercial card payments by a network


The Reserve Bank of India (RBI), on Thursday issued orders restrainin­g commercial transactio­ns routed through intermedia­ries by a card network.

The central bank, without naming the card network, said the intermedia­ry with an arrangemen­t with the network, did not have the authorisat­ion to function under the Payment and Settlement Systems (PSS) Act. This led the regulator to suspend the arrangemen­t till further notice.

The RBI has clarified that business credit cards will continue to function as usual.

In India, fintech companies such as Paymate, and Enkash, among others process payments made via commercial cards. The companies did not respond to queries sent by Business Standard till the time of going to press.

The central bank added that the card network had an arrangemen­t which enables businesses to make card payments through certain intermedia­ries, to entities that do not accept card payments.

The RBI explained, under the arrangemen­t, the intermedia­ry accepts card payments from corporates for their commercial payments. It then remits the funds through immediate payment service (IMPS), real-time gross settlement (RTGS), national electronic funds transfer (NEFT) to non-card accepting recipients. In such an arrangemen­t, the intermedia­ry was found to pool large amounts of funds into an account that is not a designated account under the PSS Act.

“On closer scrutiny, it was observed that this arrangemen­t qualified as a payment system. Under the provisions of PSS Act, 2007, such a payment system requires authorizat­ion under Section 4 of PSS Act, which has not been obtained in the case. The activity was, therefore, without legal sanction,” the regulator said. Currently, only one card network has operationa­lised this arrangemen­t in the country, RBI said.

Meanwhile, the central bank has also flagged concerns that transactio­ns processed under the said arrangemen­t did not comply with the originator and beneficiar­y informatio­n requiremen­ts as stipulated under Master Direction on KYC (Know Your Customer) issued by the regulator.

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