Mint Explainer: What RBI's commercial credit card diktat is all about

livemint.com:

commercial credit cards, sometimes mediated by fintechs. The latter are called BPSP transactions, now suspended by RBI. According to RBI, fintechs are pooling large amounts of funds collected from corporates into accounts, which are not designated under the Payment System Settlement (PSS) Act.

Typically, these funds should go through nodal or escrow accounts. and not current accounts. These funds are then transferred to vendors, who are not registered as merchants.

This bypassing of the regulations seems to have irked the regulator. While banks and credit card firms do not disclose the number of commercial cards issued or the volume of spend, a senior banker said that about 25% of all credit card spends are on commercial cards, while the remaining happens on retail credit cards. About half of these commercial card spends are for vendor payments, a segment that has been stopped after the RBI circular.

Given that total credit card spending was at ₹1.65 trillion in December, card payments worth over ₹20,000 crore on a gross basis could be hit every month. Macquarie Research says these cards were issued to drive volumes and never contributed much to profitability as margins were low. So, in the near term, while overall spending will come down for all players, the profitability impact will be low.

It expects volume impact and lower card spending beginning in March 2024 to be reported by banks. Industry officials say BPSP was a special arrangement brought in by Visa. RBI assured normal business cards used for travel booking etc will not be affected.