RBI Says Only One Card Network Breached Rules On Commercial Card Payments
The Reserve Bank of India said that one card network had created an unauthorised payment system to drive commercial card payments.
"Under the provisions of the Payment and Settlement Systems (PSS) Act, 2007, such a payment system requires authorization under Section 4 of the PSS Act, which has not been obtained in the instant case. The activity was, therefore, without legal sanction," the regulator said in a statement on Thursday.
The RBI did not clarify which card network it was referring to.
In a statement earlier in the day, international card network Visa said that it had received communication from the RBI last week on halting services by commercial card payment providers.
“Visa received a communication from the RBI on Thursday, Feb. 8 in what appears to be an industry-wide request for information on the role of business payment solution providers (BPSPs) in commercial and business payments. That communication included the direction that we hold all BPSP transactions in abeyance," a spokesperson from Visa said.
Modus Operandi
The RBI noticed that the above-mentioned card network had created an arrangement with intermediaries to create a payment system, which was not permitted by the regulator.
In such an arrangement, the intermediary would accept card payments from corporates for their commercial payments and then remit the funds via digital payment routes to non-card-accepting recipients.
"On closer scrutiny, it was observed that this arrangement qualified as a payment system," the regulator said.
According to the RBI, this raised two major concerns:
The intermediary in the above arrangement pooled a large amount of funds into an account, which is not a designated account under the PSS Act.
Transactions processed under this arrangement did not comply with the originator and beneficiary information requirements, as stipulated under the master direction on KYC issued by the Reserve Bank.
For now, the RBI is closely scrutinising these arrangements and has asked the card network to keep all such transactions in abeyance till further orders.
"It is clarified that the Reserve Bank has not placed any restriction with respect to normal usage of business credit cards," the RBI said.
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