What’s Behind RBI’s Decision to Restrain Card Networks in India? Read Details

The Reserve Bank of India (RBI) has taken decisive action against a certain card network, albeit without explicitly naming it, for allegedly facilitating unauthorized payments through intermediaries. This move by the RBI underscores the critical role of regulatory oversight in maintaining the integrity and security of payment systems within the country.

What is a card network?

Card networks serve as intermediaries linking banks, merchants, and cardholders to facilitate secure and efficient transactions. In India, there are five authorized card networks: Visa, Mastercard, RuPay, Diners Club, and American Express.

Although the RBI did not disclose the card network affected, it mentioned that only one network had implemented the arrangement allowing corporations to make unauthorized card payments via business cards in the country.

What was the alleged operation method?

According to the RBI, it observed that a particular card network had arrangements enabling businesses to process card payments through specific intermediaries for entities not equipped to accept card transactions. These intermediaries accepted card payments from corporations for commercial purposes and subsequently transferred the funds to non-card-accepting recipients via IMPS, RTGS, or NEFT.

What are the RBI’s concerns?

Upon closer examination, the RBI found that such arrangements constituted a payment system requiring authorization under Section 4 of the PSS Act, which was lacking in this case. Additionally, the RBI highlighted two other concerns: the pooling of significant funds into an account not designated under the PSS Act and non-compliance with originator and beneficiary information requirements outlined in the Master Direction on KYC.

What actions has the RBI taken?

The RBI has instructed the card network to suspend all such arrangements until further notice. However, it clarified that there are no restrictions on the standard use of business credit cards. While the RBI did not name the card network, Visa disclosed receiving regulatory direction to suspend all Business Payment Service Provider (BPSP) transactions until further notice. Visa also urged BPSPs to confirm the blocking of merchants’ IDs and cessation of transactions authorized before the communication.