RBI said that a card network had an arrangement that enabled businesses to make card payments through certain intermediaries (fintech aggregators), to entities that do not accept card payments. In this setup, the intermediary accepts card payments from corporates for commercial purposes and then transfers the funds via netbanking to non-card-accepting recipients.
This was creating an unauthorised pool of funds for such payments violating norms. There were also KYC rule violations. Business credit cards, unlike consumer cards, are used by companies to make vendor payments.
RBI said that only one card network has implemented this arrangement in the country thus far, but it did not name the network. However, on Thursday, Visa had asked several fintechs that were issuing business credit cards as intermediaries to stop payment services.
In response to a TOI query, Visa said that it received a communication from RBI on Feb 8, which seems to be an industry-wide request for information regarding the involvement of aggregators or business payment solution providers in commercial and business payments, with directions to suspend services to these BPSP.
RBI, in its press release, said it determined that this arrangement to settle payments from a pooled account qualified as a payment system. However, it lacked authorisation under Section 4 of the Payment and Settlement Systems (PSS) Act, 2007, rendering the activity legally unauthorised.
Additionally, arrangement raised concerns such as pooling large sums of funds into an account not designated under PSS Act. The Act requires such a system to maintain originator and beneficiary information as prescribed in Master Direction on KYC issued by RBI.
The regulator said that until further investigation, the card network has been advised to suspend all such arrangements until further notice. RBI clarified that it has not imposed any restrictions on the regular usage of business credit cards.
According to bankers, there are close to six fintech aggregators issuing business credit cards. This could not be independently verified with fintechs. Bankers said that the move would not hurt their credit card business as these business cards were acting as a substitute for working capital finance, providing businesses with free one-month credit for vendor purchases.
