unauthorised card payments through certain intermediaries. Without naming the card network, the banking regulator has made an observation via a press release that the card network had an arrangement that enables businesses to make card payments through certain intermediaries to entities that do not accept card payments. This arrangement works like this: The corporates make payments via card network to an intermediary for commercial payments and the same is then remitted via electronic transfer (such as IMPS/RTGS/NEFT) to the recipients which do not accept card payments.
The RBI noted that this payment system requires authorisation under section 4 of PSS (Payment and Settlement Systems) Act. And the same was not received in this case, thus rendering the money transfer illegal. While sharing further details, RBI flagged two key concerns: A.
The intermediary in the above arrangement pooled large amount of funds into an account which is not a designated account under PSS Act. B. 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 RBI.
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. Meanwhile, the card network has been advised to keep all such arrangements under abeyance till further orders while making it amply clear that RBI has not placed any restriction with respect to normal usage of business credit cards. Notably, Reuters reported that RBI has asked Visa and Mastercard to stop card-based business-to-business payments such as rents or money transfer to vendors routed through third party fintech
. Read more on livemint.com