RBI restrains card network from unauthorised commercial payment arrangement

The Reserve Bank of India (RBI) restrained an unnamed card network on Thursday that allowed businesses to make card payments to entities that do not accept card payments, citing a lack of "legal sanction". The Reserve Bank, however, did not identify the card network or its intermediaries.

According to available information, only one card network in the country has implemented this arrangement thus far, the central bank stated.

RBI said in a statement: "As the matter is under detailed examination, the card network has been advised to keep all such arrangements under abeyance, till further orders." 

The RBI stated that it had become aware of a card network's arrangement that allows businesses to make card payments to entities that do not accept card payments via certain intermediaries.

"Under this arrangement, the intermediary accepts card payments from corporates for their commercial payments and then remits the funds via IMPS/RTGS/NEFT to non-card accepting recipients," the RBI added.

The central bankk informed that on closer scrutiny it observed that the arrangement qualified as a payment system under the provisions of the Payment and Settlement Systems (PSS) Act of 2007, and such a payment system requires authorization, which was not obtained in this case. "The activity was, therefore, without legal sanction," it further added.

The RBI expressed concern about the arrangement because the intermediary pooled large amounts of funds into an account that is not a designated account under the PSS Act.

"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 Reserve Bank," it said.

However, the central bank clarified that there are no restrictions on the normal use of business credit cards.

Read RBI's notice below — 

Payment Intermediary by Card Network - Restraining of Unauthorized Payment System

It has come to the notice of Reserve Bank of India that a Card Network had an arrangement that enables businesses to make card payments through certain intermediaries, to entities that do not accept card payments.

2. Under this arrangement, the intermediary accepts card payments from corporates for their commercial payments and then remits the funds via IMPS/RTGS/NEFT to non-card accepting recipients.

3. On closer scrutiny, it was observed that this arrangement qualified as a payment system. Under the provisions of Payment and Settlement Systems (PSS) Act, 2007, such payment system requires authorization under Section 4 of PSS Act, which has not been obtained in the instant case. The activity was, therefore, without legal sanction.

4. The arrangement has also raised following concerns:

i) The intermediary in the above arrangement pooled large amount of funds into an account which is not a designated account under PSS Act.

ii) 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 Reserve Bank. 

5. As per information available, only one card network has operationalized this arrangement in the country so far.

6. As the matter is under detailed examination, the Card Network has been advised to keep all such arrangements under abeyance, till further orders. It is clarified that the Reserve Bank has not placed any restriction with respect to normal usage of business credit cards.