In a surprise move, the Reserve Bank of India has reportedly asked card networks like Visa and Mastercard to stop card-based commercial payments made by corporations and small enterprises. According to a report in Economic Times, RBI has asked Visa and Mastercard to stop transactions of vendor payments.
Lack of proper KYC may be behind the decision
While the exact reason is not known, industry sources indicate that flow of money through the card route towards non-KYC-ed merchants is something that has irked the regulator. While the bank accounts of these merchants might be KYC-ed but they are mostly not authorised to accept card payments as merchants.
A founder of a fintech startup who has received the notice, told ET (on condition of anonymity), “An instruction has come to the fintechs which operate in this sector to pause business payments made by commercial cards until further notice.” He is said to have added that rental and tuition payments might also be impacted by the move and some fintechs are looking to stop those transactions too. Consumers can make rental payments via their cards through apps like Cred, Paytm and NoBroker.
What Visa communication to these companies says
The communication from Visa to these enterprises reads: “We have been directed by the regulator to ensure that all Business Payment Service Provider (BPSP) transactions be kept in abeyance till further notice. Hence, we kindly ask that all BPSP merchants registered by yourselves with Visa be immediately suspended till advised by us to the contrary. For avoidance of doubt, any transaction authorized prior to the communication would be settled in the ordinary course of business. We kindly ask that you send us a confirmation at the earliest that such merchants/merchant IDs have been blocked and transactions ceased. Failure to adhere to these instructions could result in regulatory sanction and non-compliance assessment under the Visa rules.”
Fintech Founders Wary Of Rbi After Ban on Paytm Payments Bank
According to a report in LiveMint, a senior official, whose fintech has been directly impacted by this decision, said, “There’s some miscommunication or misrepresentation to RBI, otherwise there’s no reason they would be doing this. This is coming from a point of view that there’s quite a bit of transactions happening in the ecosystem in the name of tuition fee, rental payments and the likes of it…which is becoming too large to manage. RBI’s concerns might be the source of the money and where it is going.”
Post the strict action by RBI against Paytm Payments Bank due to compliance issues, fintech founders seem to be wary of upsetting the regulator. They told the publication that moving forward they are going cautious and stopping all forms of payments done through this route, until they get clarity from RBI.