17 February 2024 – In a move that has sent ripples across the financial sector, the Reserve Bank of India (RBI) has instructed Mastercard and Visa to halt commercial payments conducted by companies through cards. The directive, issued on February 8, mandates the suspension of all transactions facilitated by business payment solution providers (BPSP) until further notice.
The RBI’s recent directive to suspend commercial payments through Mastercard and Visa has raised concerns and triggered discussions within the financial industry. The move is aimed at scrutinizing the role of business payment solution providers in commercial transactions.
Details of the Directive:
Mastercard and Visa, key players in the payment ecosystem, received instructions from the RBI to temporarily suspend transactions involving business payment solution providers. The directive encompasses corporate card-to-business account money transfer transactions. The central bank’s decision has prompted engagement between the regulators, payment providers, and ecosystem participants.
While the RBI has not explicitly outlined the reasons for the suspension, industry experts speculate that concerns over the flow of money through cards to non-KYC-ed (Know Your Customer) merchants might have influenced the move. The regulator may be seeking clarity on KYC compliance for small businesses receiving payments, particularly those engaged with large corporations.
There are indications that suspicions of fraud or money laundering in high-value transactions, especially those involving non-KYC-ed merchants, might have prompted the regulatory intervention. The RBI’s emphasis on a robust KYC mechanism for sustainable growth underscores the need for financial institutions and fintech players to align with compliance requirements.
Conclusion and Impact:
The directive has implications for companies that utilize card-based payments for transactions with suppliers and vendors. Industry players, including fintechs facilitating such payments, are now navigating the regulatory landscape to ensure compliance. The RBI’s focus on a compliance-first approach highlights the evolving dynamics of digital transactions and emphasizes the need for a secure and transparent financial ecosystem.
As the industry awaits further communication from the RBI and clarification on the regulatory concerns, the suspension serves as a reminder of the importance of stringent compliance measures in the financial sector.
