Central Bank of India has asked Visa and Mastercard to stop card-based payments for business-to-business purposes. This means transfer of money to vendors via third-party fintech firms will no longer being supported by the Reserve Bank of India.
As per sources, RBI has not stated any specific reason behind the regulation. However, the restrictions will not include all sorts of corporate payments made through cards. This is only applicable on commercial payments.
One can only assume that the regulation has been devised in view of certain fintech firms that aim to provide business payment solution to merchants which refuse to accept payments via card in exchange of a fee.
In this way, only a small section of fintech firms will get affected who enable such payments. Regular payments, on the contrary, will not be affected.
In view of the development, Visa and Mastercard will have to stop such transactions, whereas all other mode of money transfer will not come under this ambit.
It has been found that Visa has been directed by the RBI, earlier this month, to provide information on the role of business payment solution providers (BPSPs) in both commercial and business payments genre. The communication also indicated that the RBI might clampdown on all sorts of BPSP transactions.
There is no indication of communication from Mastercard, yet. However, Visa is trying to ensure all sorts of compliance to the directive.
The RBI wants to ensure that fintech firms providing this measure are within the regulatory ambit and, hence, no unauthorised transactions take place on the digital platform, citing KYC issues. The move indicates that central bank wants to ensure from now that all digital transactions are fully KYC compliant.
The directive reminds us of the development when the RBI barred Paytm from offering all its services, which crippled the company’s business. The regulation was justified on the basis of KYC issues, just like this mandate. And how far this is going to impact the fintech firms is a point to consider, although fintech players have accepted that certain customers use their cards to make payments which are deemed to be unauthorised such as rentals and tuition fees.
The move can also be seen considered in terms of violation of Payment and Settlement Systems Act, 2007, which aims to regulate payment system of the country.
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