The Reserve Bank of India (RBI) has instructed card networks Visa and Mastercard to suspend card-based commercial payments through payment service providers and companies. While the RBI has not officially announced the reasons for this directive, fintech companies have reported that such transactions are being conducted at outlets that are not authorized to accept card payments. This move by the RBI is likely aimed at ensuring that fintech players and service providers operate within the regulatory framework and prevent fraudulent or unauthorized transactions on digital platforms.
Potential Violation of Payment and Settlement Systems Act
The directive from the RBI to halt card-based commercial payments may be related to a potential violation of the Payment and Settlement Systems Act, 2007. Fintech firms are reportedly allowing customers to use their cards for payments such as tuition fees and rentals, even though these fintechs are not authorized to accept card payments This could be seen as a violation of the regulatory framework and compliance requirements set by the RBI.
KYC Compliance and Regulatory Concerns
The RBI’s intervention with Visa and Mastercard may also be driven by concerns over Know Your Customer (KYC) compliance and the need to ensure that all digital transactions are fully KYC compliant. The central bank wants to ensure that fintech players and service providers adhere to KYC norms and operate within the regulatory ambit. By suspending card-based commercial payments, the RBI aims to address observed lapses in adhering to KYC norms and prevent potential misuse of the digital payment platform.
Impact on Fintech Companies
The directive from the RBI to suspend card-based commercial payments has implications for fintech companies and non-KYC-ed merchants. Fintech founders have expressed wariness about upsetting the regulator, especially after the recent regulatory actions against Paytm Payments Bank. It is important for fintech companies to engage in discussions with the RBI and ecosystem partners to ensure regulatory compliance and address any concerns raised by the central bank.
Regulatory Actions Against Paytm
The RBI’s directive to Visa and Mastercard follows recent regulatory actions initiated against Paytm Payments Bank. On January 31, the RBI barred Paytm from offering all its core services, including accounts and wallets, from March due to non-compliance with regulatory requirements. This action against Paytm may have contributed to the broader crackdown on non-compliance within the payments sector and the RBI’s increased scrutiny of fintech players.
In conclusion, the RBI has directed Visa and Mastercard to suspend card-based commercial payments through payment service providers and companies. This directive is likely aimed at ensuring regulatory compliance, preventing unauthorized transactions, and addressing potential violations of the Payment and Settlement Systems Act, 2007. Fintech companies and non-KYC-ed merchants are advised to engage with the RBI and ecosystem partners to ensure compliance with KYC norms and regulatory requirements.
