In a significant move, the Reserve Bank of India (RBI) has directed Mastercard and Visa to pause all commercial payments made through cards by companies. This directive, issued on February 8, has sent ripples through the financial sector, prompting immediate discussions between the banking regulator, these payment giants, and other stakeholders to clarify the future business model for corporate card-to-business account transactions.
The suspension of business payment solution providers’ (BPSP) transactions is a response to concerns raised by the RBI, although the specific reasons behind this decision have not been publicly disclosed. Visa, in an email statement, confirmed receiving communication from the RBI, which appears to be part of a broader inquiry into the role of BPSPs in commercial and business payments. Visa emphasized its commitment to compliance and ongoing discussions with the RBI and partners in the payment ecosystem.
This move impacts companies that rely on card payments for transactions such as supplier and vendor payments, which are facilitated by fintech companies like Enkash, Karbon, and Paymate. These fintech solutions have become integral to the commercial payment landscape, handling transactions worth over Rs 20,000 crore monthly. In light of the RBI’s directive, companies like Paymate have already begun making alternate arrangements to ensure compliance.
The underlying concerns leading to the RBI’s directive seem to revolve around the flow of funds through card payments to non-KYC-compliant merchants, potential fraud, and money laundering in high-value transactions. The RBI’s scrutiny is particularly focused on ensuring that small businesses receiving payments through this mechanism are part of the companies’ legitimate vendor/supplier ecosystem and have undergone proper KYC procedures.
The banking industry and fintech companies are now tasked with providing clarity on these transactions to the regulator, amidst concerns that some end-users might not be genuine parts of the corporate vendor/supplier network. This situation has led to a halt in card-based commercial payments until a comprehensive investigation is completed.
The RBI’s actions underscore its commitment to maintaining a secure and compliant financial ecosystem, emphasizing the importance of robust KYC solutions and regulatory compliance for sustainable growth in the digital finance space. As the situation unfolds, financial institutions and fintech players are reminded of the critical need to ensure that all transactions are within regulatory guidelines, safeguarding against unauthorized or fraudulent activities.
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