RBI swipes left on commercial credit cards

livemint.com:

The Reserve Bank of India (RBI) has halted businesses from paying each other via credit cards, by ordering card networks Visa and Mastercard to stop all such payments. Businesses typically pay their vendors by bank transfers or commercial credit cards, sometimes mediated by fintechs. The latter are called Business Payment Service Provider (BPSP) transactions, now suspended by RBI.

While the exact reason for the abrupt move is not known, Arpit Ratan, co-founder and chief business officer of Signzy, a digital banking infrastructure provider, said that RBI’s concern seems to come from the fact that certain recipients of card transactions may not be registered merchants, something that is not allowed by the KYC regime. KYC stands for know your customer. “In case of peer-to-peer transactions, cards were never allowed, and even today, you cannot pay some individual by your card.

On the other hand, business-to-business payments were to be made through fund transfers like RTGS, NEFT, cheques, etc," said Ratan. Cards are meant to be used at physical and online merchants, and there is an entire KYC process to follow when merchants are registered and onboarded, he added. A person aware of the development said the RBI is likely looking at the extent of use of such products.

Commercial cards issued by banks are used to make payments to vendors or merchants. Before fintechs entered with new products, companies used to make individual payments to their vendors and suppliers on a daily, weekly or even monthly basis through traditional banking channels. Then, the business payment service providers took on the job of distributing these payments on behalf of the company.