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.