RBI Cracks Down On Card Networks’ Tie-Ups With Payments Intermediaries

"SUMMARY: All card-based business payments made through specific intermediaries to organisations that do not accept card payments are to be held in abeyance by an unidentified card network. Under the radar are middlemen or suppliers of business payment solutions who take credit card payments for business payments and then transfer the money to receivers who do not accept credit cards via IMPS, RTS, or NEFT. The Reserve Bank of India (RBI) has issued a new directive just one day after it was reported that the central bank has instructed card networks Visa and Mastercard to stop accepting commercial cards for business payments. According to the RBI, no request for clearance was made to the appropriate authorities for these transactions, meaning that there was no legal backing for the entire payment process. The RBI has instructed an unidentified card network to hold up any card-based business payments made to organisations that don't accept card payments through payment intermediaries, as per a circular dated February 15. The RBI has been informed that a card network has a deal in place that allows companies to pay with cards to companies that don't take cards through specific middlemen.

The circular stated, ""The card network has been advised to keep all such arrangements under abeyance, until further orders, as the matter is under detailed examination."" In this system, corporates pay with cards for business payments to the business payments solutions providers or intermediary, which subsequently transfers the money to recipients who do not accept cards using IMPS, RTS, or NEFT. Industry insiders claim that Visa and Mastercard implemented this unique arrangement to increase the acceptability of credit cards for commercial transactions. The agreement, which was exclusive to business or corporate credit cards, stated that certain empanelled vendors would pay a substantially reduced merchant discount rate or interchange fee to payments intermediaries. ""Card networks brought in a significantly reduced interchange, preventing acceptance costs from becoming an issue. One person linked to a fintech unicorn said, ""Business payments solutions providers, or BPSPs, their acquirers and issuers entered a mutual commercial agreement at a much lower pricing which could be as low as 0.3%.""  According to a second fintech sector insider, the RBI might also be looking into whether the BPSP payouts are for real transactions rather than money laundering or round-tripping. The Payment and Settlement Systems (PSS) Act of 2007 stipulates that specific authorization is necessary for any agreements made with card networks, according to the central bank. It stated that since the appropriate authorities were not consulted for such transactions, there was no legal backing for the entire payment process."