The Reserve Bank of India (RBI) has instructed card networks to halt commercial card transactions under the Business Payment Solution Providers (BPSP) business segment. This directive from the central bank arises from concerns regarding the legitimacy and insufficiency of merchant Know Your Customer (KYC) procedures and uncertainties surrounding the end use of funds.
RBI, in a communication to card networks, has specifically addressed a sub-segment of B2B (business-to-business) payments known as BPSP. The central bank has sought clarification on the workings of BPSP and the involved participants. Concurrently, RBI has imposed restrictions on any incremental transactions within this category.
Traditionally, corporate payments are facilitated through RTGS and NEFT account transfers. However, BPSP allows businesses to receive card payments without the requisite infrastructure. This mechanism enables businesses to make payments to smaller suppliers who may not have the capacity to accept credit payments directly.
Although BPSPs fall under the regulatory purview of RBI and are licensed under the Payment Aggregators and Payment Gateways guidelines, there are concerns surrounding transactions lacking proper invoicing and KYC documentation. This lack of transparency makes it challenging to trace the source and utilization of funds.
The BPSP facility allows corporate credit card players to make significant payments directly to vendors or merchants’ bank accounts, providing a credit window of 15-45 days to the debtor.
RBI’s scrutiny on BPSP transactions comes amid instances of card-to-peer or card-to-business payments that do not adhere to regulatory guidelines, either due to unregistered merchants or transactions not aligned with the designated use cases for card payments.
Increasing regulatory focus
While the full impact of RBI’s directive remains uncertain, it marks a regulatory focus on the burgeoning commercial card market, which is expected to reach $60 billion by FY26 in India, according to estimates. The global commercial card market is also projected to reach around $5 trillion by 2025. The move by RBI has prompted discussions between top executives of Visa and Mastercard and RBI officials to address regulatory concerns and ensure compliance within the commercial card segment.
