The Reserve Bank of India (RBI) has raised concerns regarding a payment arrangement facilitated by a card network, allowing businesses to conduct card payments through certain intermediaries to entities that don’t accept card payments.
In this setup, the intermediary accepts card payments from companies for their commercial transactions and then transfers the funds via IMPS/RTGS/NEFT to recipients who don’t accept cards.
Upon scrutiny, RBI found that this arrangement qualifies as a payment system under the Payment and Settlement Systems (PSS) Act, 2007. However, it lacks the necessary authorization under Section 4 of the PSS Act, rendering it legally unauthorized.
This setup has raised several concerns. Firstly, the intermediary pools large sums of money into an account that isn’t designated under the PSS Act. Secondly, transactions processed through this system don’t comply with the originator and beneficiary information requirements outlined in the Reserve Bank’s Master Direction on KYC.
Reportedly, only one card network has implemented this arrangement in the country so far. Given these findings, RBI has advised the card network to suspend all such arrangements until further notice. However, it’s important to note that RBI hasn’t imposed any restrictions on the regular usage of business credit cards.
