RBI cracks down on unauthorised payments through business cards

Reserve Bank of India (RBI) on Thursday issued an order restraining payments by companies through intermediaries to non-card-accepting recipients for violation of section 4 of the Payment and Settlement Systems (PSS) Act. While the central bank did not name the card network, it said that one card network has arrangements to allow such payments through intermediaries and the matter is under detailed examination.

“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.  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” RBI said.

Under this arrangement, referred to as Business Payment Solution Providers (BPSP), an intermediary accepts commercial card payments from corporates and then remits the funds via IMPS, RTGS, or NEFT to non-card-accepting recipients.

“It was observed that this arrangement qualified as a payment system. Under the provisions of the Payment and Settlement Systems (PSS) Act, 2007, such a payment system requires authorisation under Section 4 of the PSS Act, which has not been obtained in the instant case. The activity was, therefore, without legal sanction,” RBI said.

 RBI said that such payment transactions raised concerns because the intermediary “pooled a large amount of funds into an account which is not a designated account under the PSS Act.” Further, the transactions processed did not comply with the originator and beneficiary information requirements as per the RBI’s directions on KYC.

India currently has five card networks viz. Visa, Mastercard,  RuPay, American Express, and Diner’s Club. It is interesting to note that the regulator has pointed out that only one card network has operationalised this arrangement in the country so far.

Given the matter being under detailed examination, the Card Network has been advised by the central bank to keep all such arrangements under abeyance, till further orders. It was further clarified that the Reserve Bank has not placed any restrictions concerning the normal usage of business credit cards.