In a move that caught the industry by surprise, the Reserve Bank of India asked card networks like Visa and Mastercard to stop card based commercial payments made by corporations and small enterprises.
Transactions being done at other business outlets who might not be authorised to accept card payments have been temporarily halted, industry sources said.
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 their bank accounts might be KYC-ed but they are mostly not authorised to accept card payments as merchants.
“An instruction has come to the fintechs which operate in this sector to pause business payments made by commercial cards until further notice,” said a founder of a fintech startup who has received the notice. He spoke on the condition of anonymity.
He further added that rental payments, 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 ther cards through apps like Cred, Paytm and NoBroker.
Typically business payments are made by companies through net banking or bulk transfers managed by the RBI like RTGS (Real Time Gross Settlements). Card payments are not commonly used in this space, until fintechs and card networks built the process through which business vendors could be paid by cards. Fintechs like Enkash, Paymate and others process payments made through commercial cards for business needs, like paying vendors, suppliers and others.
“I am made to understand that the instruction has come from the RBI to the card networks, who in turn have informed the industry, we have paused as of now following guidelines, but we have made some alternate arrangements which are fully compliant in nature to ensure that business payments as a whole are not disrupted,” said Ajay Adiseshann, chief executive officer, Paymate, a major player in the business payments space which is backed by Visa.
While the move has taken the industry by surprise, the exact reason for the regulatory action is still unknown. Some said that it could be related to the payment aggregator guidelines. In case that the card networks were working with players who have not even received the in-principle approval from the RBI regarding the payment aggregator licence, it could be an issue from the regulatory standpoint, they said.
Others said that it could have been triggered from the fact that many fintech platforms are allowing consumers to use their cards to pay for tuition fees, rentals etc. Since these users are not authorised to accept payments via card, it could be attracting regulatory scrutiny. It could effectively become a means to cash out from debit cards without following the right directives in this regard, they said.
“We believe there will be a review of the process and the industry will make representations to the RBI, while rental payments etc might be issues that the regulator wants to stop, vendor payments are done through well established regulated banking channels only, so ideally it should be allowed,” said another fintech founder impacted by the move.
In the event of the RBI taking strict action against Paytm Payments Bank because of compliance issues, fintech founders said that they do not intend to irk the regulator. They added that they are going cautious and stopping all forms of payments done through this route, until they get clarity from the regulator.
