The Reserve Bank of India has instructed card networks such as Visa and Mastercard to cease Business Payments via Cards conducted by corporations and small enterprises, surprising the industry. Industry sources have reported a temporary halt in transactions being conducted at other business outlets that may not be authorized to accept card payments.
Although the exact reason remains undisclosed, industry sources suggest that the regulator is concerned about money flow through the card route toward non-KYC-ed merchants. While their bank accounts may be KYC-ed, these merchants are largely unauthorized to accept Business Payments via Cards as merchants.
Fintechs Directed to Halt Business Payments via Commercial Cards
A founder of a fintech startup, who preferred anonymity, disclosed that an instruction had been received by fintechs operating in this sector to pause business payments made by commercial cards temporarily. He further mentioned that rental and tuition payments might also face disruption due to the directive, leading some fintechs to consider halting those transactions. Consumers have been accustomed to making rental payments via their cards through apps such as Cred, Paytm, and NoBroker.
Queries sent via email to Visa and Mastercard yielded no immediate response.
Regulator Directive Disrupts Business Payments via Commercial Cards
Ajay Adiseshann, CEO of Paymate, a significant player in the business payments sector backed by Visa, disclosed that the regulator had instructed card networks, subsequently relayed to the industry, to suspend business payments via commercial cards. Adiseshann emphasized that while complying with the guidelines, they have implemented alternative arrangements to ensure continuity in business payments without disruption.
Traditionally, companies execute business payments through net banking or bulk transfers like RTGS managed by the RBI, with card payments being uncommon in this domain until fintechs and card networks facilitated the process. Fintech firms like Enkash and Paymate enable payments through commercial cards for various business needs, including vendor and supplier payments.
The exact rationale behind the regulatory action remains undisclosed, prompting speculation that it could be linked to the payment aggregator guidelines. The move has caught the industry off guard, leaving stakeholders seeking further clarity on the matter.
Regulatory Concerns Spark Industry Speculation on Card Network Collaboration
Industry insiders speculate that potential collaboration between card networks and entities lacking in-principle approval from the RBI for payment aggregator licenses may have triggered regulatory concerns. Additionally, the usage of fintech platforms by consumers to pay for tuition fees, rentals, and other services via cards, despite not being authorized to accept such payments, is under scrutiny.
Fintech founders impacted by the directive express a readiness to cooperate with the RBI and are halting all payments conducted through this channel until regulatory clarity is obtained. They underscore the need for a review process, emphasizing that while rental payments might warrant scrutiny, vendor payments are typically conducted through established, regulated banking channels and should ideally be permissible.
RBI Imposes Restrictions on Paytm Payments Bank
The RBI has implemented five types of restrictions on Paytm Payments Bank. After February 29, 2024, the payments bank account cannot accept deposits, credit transactions, and/or top-ups in customer accounts, prepaid instruments, wallets, FASTags, or National Common Mobility Cards. Interest, cashback, and/or refunds may be credited to these accounts, and they will only be available for withdrawal or utilization.
Banking facilities such as bill payments and UPI, where Paytm has reasonable leadership, cannot be performed after February 29. Nodal Accounts of One97 Communications and Paytm Payments Services must be closed by February 29, and all pipeline transactions and nodal accounts shall be settled by March 15. In effect, the business of Paytm Payments Bank can become dysfunctional in a few weeks, and several businesses of One97 Communications dependent on the payment bank, an associate company of the group, face the risk of redundancy.
Also Read: SpiceJet to Lay Off 1400 Employees for Cost Saving and Investor Retention
PM Surya Ghar: Muft Bijli Yojana to Usher in Solar Revolution in India
Electric Air Copters by Maruti Suzuki to Revolutionize Mobility
