RBI asks Visa, Mastercard to suspend card-based commercial payments

In what appears to be another blow to fintech companies, India’s central bank RBI has reportedly asked Visa and Mastercard to bar card-based commercial payments made by companies.

It is worth noting that a few fintech companies, such as Enkash, Karbon, and Paymate, allow payments through cards for purposes like payments to suppliers or vendors. Companies usually make business payments through net banking or RTGS, as pointed out by the Economic Times.

The development was first reported by Arti Singh.

Visa in a message to its partners said that the company has been directed by the regulator to suspend all Business Payment Service Provider (BPSP) transactions until further notice.

“Hence, we kindly ask that all BPSP merchants/merchant is registered by yourselves with Visa be immediately suspended till advised by us to the contrary. For avoidance of doubt,  any transaction authorized prior to the communication would be settled in the ordinary course of business. We kindly ask that you send us a confirmation at the earliest that such merchants/merchant IDs have been blocked and transactions ceased. Failure to adhere to these instructions could result in regulatory sanction and non-compliance assessment under the Visa rules,” the message is quoted as saying.

As of now, it is not clear why the RBI has made this move. According to the ET report, the central bank has been unhappy with payments to merchants who have not followed KYC norms. The report further pointed out that some of the merchants are not eligible to accept card payments.

“…Recently, the RBI asked card networks like Visa and Mastercard to stop card based commercial payments made by corporations and small businesses. Such regulatory hurdles can be avoided by adhering to regulator's rules and guidelines through innovative KYC solutions. It becomes imperative for financial institutions and fintech players to ensure that all financial transactions taking place are within the regulatory ambit and that no fraudulent or unauthorized transactions are occurring on the digital platform while maintaining the security posture,” said Ankit Ratan, CEO & Co-founder at Signzy, in a statement.

That said, Indian fintech companies have had a hard time in the last couple of years following the regulatory changes. For instance, a popular BNPL firm Zestmoney shut down its operations last year after the RBI issued a series of guidelines and directives for BNPL firms.

One of the first major blows came in June 2022 when the Reserve Bank of India (RBI) prohibited all non-bank prepaid instrument issuers from loading instruments with credit lines.

This essentially meant these firms could no longer extend credit lines through the prepaid payment instruments, which includes cards and wallets. Until then, BNPL firms partnered with the banks to offer self-branded cards and allowed end users to use them for credits as and when required.

Just a few months later RBI’s guidelines for the first loan default guarantee (FLDG) dealt another blow to the BNPL firms.

Separately, fintech giant Paytm has been facing similar challenges as the RBI barred Paytm Payments Bank (PPBL) from accepting fresh deposits and continuing banking services after February 29 due to non-compliance. The move, taken under section 35A of the Banking Regulation Act, 1949, also affected Paytm’s other services such as FASTags.

Since the announcement, Paytm’s shares have continued to nosedive on the stock exchange. At the time of writing, its shares further crashed by 9%, slipping under the Rs 350 mark, reaching a 52-week low.