No Curb On Business Credit Cards, ‘A Card Network’ Restrained From Unauthorised Card Payments: RBI

Amid reports that card networks like Mastercard and Visa have halted card-based commercial payments made by companies and small entities, the Reserve Bank of India (RBI) on Thursday said “a card network” has been retrained from unauthorised card payment system, and that the central bank has not placed any restriction on normal usage of business credit cards.

While the RBI did not specify the name of the card network, a Moneycontrol report says the direction was placed on the Visa network.

“A card network without any legal sanction was enabling businesses to make card payments through certain intermediaries, and then was remitting the money to entities that do not accept card payments,” the RBI said in a statement.

It has come to the notice of the Reserve Bank of India that a Card Network had an arrangement that enables businesses to make card payments through certain intermediaries, to entities that do not accept card payments, the statement said.

Under this arrangement, the intermediary accepts card payments from corporates for their commercial payments and then remits the funds via IMPS/RTGS/NEFT to non-card accepting recipients, it said.

“On closer scrutiny, it was observed that this arrangement qualified as a payment system. Under the provisions of the Payment and Settlement Systems (PSS) Act, 2007, such payment system requires authorisation under Section 4 of PSS Act, which has not been obtained in the instant case,” the RBI said.

The RBI also said the activity was, therefore, without legal sanction.

According to the RBI, the arrangement has also raised the following concerns:

i) 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.

ii) Transactions processed under this arrangement did not comply with the originator and beneficiary information requirements, as stipulated under Master Direction on KYC issued by the Reserve Bank.

“As per information available, only one card network has operationalized this arrangement in the country so far,” the RBI stated.

“As the matter is under detailed examination, the Card Network has been advised to keep all such arrangements under 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,” according to the statement.