According to the RBI, the card network had agreed that businesses could make card payments to entities that do not take card payments through certain intermediaries.
In its latest regulatory directive, the Reserve Bank of India (RBI) has instructed the Visa card network to suspend arrangements lacking legal sanction.
The RBI’s order comes in response to an arrangement facilitated by the card network, allowing businesses to conduct card payments through intermediaries to entities that do not accept such payments.
Unauthorized Payment System:
According to the RBI, the arrangement established by the card network qualifies as a payment system under the Payment and Settlement Systems (PSS) Act, 2007.
However, the arrangement lacks the necessary authorization mandated by Section 4 of the PSS Act, rendering it without legal sanction.
Activity Scrutinized:
Upon closer examination, the regulator discovered that the intermediary involved in the arrangement accepted card payments from corporates for commercial purposes and then transferred the funds to non-card accepting recipients via IMPS/RTGS/NEFT.
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This pooling of funds into an account not designated under the PSS Act violates regulatory requirements.
Non-Compliance with KYC Norms:
Furthermore, transactions processed under this arrangement failed to comply with originator and beneficiary information requirements outlined in the RBI’s Master Direction on Know Your Customer (KYC). This non-compliance poses risks to the integrity and security of the payment system.
Visa Network Restrictions:
Although the RBI did not explicitly mention the name of the card network, the restrictions were placed on the Visa network.
The regulatory measure aims to address concerns related to unauthorized payment activities and ensure adherence to legal and regulatory frameworks.
Clarification on Business Credit Cards:
The RBI clarified that the regulatory action does not impose restrictions on the normal usage of business credit cards.
However, it underscores the importance of compliance with regulatory norms and the need for card networks and intermediaries to operate within the bounds of the law.
Engagement with Regulators:
Prior to the regulatory order, both Visa and Mastercard, along with banking institutions, engaged with RBI officials to provide information and clarification on the role of business payment solution providers (BPSPs) in commercial payments.
This interaction reflects ongoing efforts to address regulatory concerns and promote transparency in the payments ecosystem.
Source – Moneycontrol
