What does RBI’s stopping of card-based B2B payments through unverified routes mean?

B2B Card payment: As the Reserve Bank of India has stopped the use of, what it termed, an unauthorised route for making Business to Business or B-2-B card payments, India’s card payment companies are on tenterhooks. The RBI in its advisory issued on Thursday, did not pinpoint any card service company in particular 

The world’s largest payments processor, Visa has admitted having received the central bank’s directive.  Visa, while referring to the central bank regulation termed it to be “an industry-wide request”. However, financial experts say that after the recent Paytm fiasco, RBI’s action on card service providers involves a larger ecosystem. Republic Business takes a deep dive. 

RBI puts B2B card pay on hold 

In an exclusive interview, Financial Expert Kishore Subramanian told Republic Business that RBI directive means that both Visa and MasterCard have to stop their payments done by commercial establishments to vendors or recipients through Business payment solution providers (BPSP).

“BPSP are intermediary companies that enable the process of transaction when a commercial establishment pays through its credit card. A commercial credit card is a credit card issued to an organisation. These organizations generally for their regular payments use IMPS, NEFT, or RTGS. However, certain companies do have corporate credit cards. Now, when it comes to corporate credit cards, these are either issued by the banks themselves or by third-party fintech companies, which are payment banks or companies that are licensed by RBI to sell third-party credit cards,” said Subramanian. 

Third-party intermediary route 

As per the RBI, the card company in question was routing commercial payments through third-party intermediaries who didn’t comply with the RBI payment and customer identification norms. So, who are these third-party players and what is the RBI’s directive to card companies?  

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“When these commercial credit cards owned by corporations make their payments to the end recipient, sometimes or many a times the end recipient is not having his or her KYC done and it may not be an individual,” said Subramanian. 

The financial expert added, “It can be a business payment done to an end recipient who can be an individual or a corporate or an organisation that entities KYC may not be fully or properly done,”

Elaborating further, the expert said RBI has issued a notice and told Visa and Mastercard till further instructions ensure that these payments traveling through commercial credit cards issued to corporations or organizations do not make payments to establishments.  

Payments lacking transparency 

The central bank has said that commercial payments routed through a third party raised two concerns, a large amount of funds being pooled into an account of the intermediary and transactions being processed without adequate information on who the funds were going to.

The RBI said it has asked the card network to keep vendor payments from commercial cards under abeyance as it would examine the matter. 

On being asked what the RBI directive means for the end user, Subramanian added, “  One can either make payments through a check, RTGS, NEFT, IMPS which is acceptable. Now, if  I am making the payment through a credit card, which is in the name of my company, and now I am using an intermediary BPSP to make my payment, or directly paying it to the vendor, all such vendor payments from commercial credit cards have been asked to be put on hold.”  

The expert says despite thousands of crores that are getting transacted in the RBI gateway through RTGS, and IMPS, RBI as a regulator is rightly worried about the fact that the end-user or the end recipient of this money may not be the beneficiaries who have proper KYC. The concern on the money probably not going to the right person or probably the money is getting laundered is another concern, Subramanian added.  

Normal usage of biz credit cards 

While, the central bank said it has not placed any restriction on the normal usage of business credit cards, experts gauge the impact of RBI’s red flag on B2B card payments through business payment solution providers.

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Subramanian says as per the anti-money laundering guidelines, with the KYC guidelines in view, RBI is supposed to be a regulator who is supposed to check on the KYC of all stakeholders and parties involved in the transaction. 

“At the same time, they should ensure that any practice that is likely to increase or enhance money laundering should be curbed. Let us understand more than Rs 20,000 crore worth of transactions take place each month through these channels,” said Subramanian. 

“So all the intermediaries who are enabling such transactions need not be fake. But RBI has a needle of suspicion that all is not clean, all is not transparent. RBI has put a hold, and put all these transactions on a buy-in till further notice,” said Subramanian.

“If you are a company which is having a corporate credit card and you are going to make your payment through the corporate credit card, through an intermediary BPSP to another vendor or a non-registered person whose identity is probably not KYC compliant or otherwise it would not go through,” said the financial expert.  

Fragile Fintech 

With just over two weeks ever since Paytm came under the RBI scanner, questions were first being raised over the fragile fintech and now on India’s card service companies. Experts say, as Republic Business reported it first, the much-needed RBI intervention can only streamline the country’s financial services sector.  

“RBI has issued a strict order, while Visa and Mastercard are communicating to their customers that if you have a corporate commercial credit card, your payments to other organizations, other recipients are not going to go through, and specifically if it’s through a BPSB,” said Subramanian. 

“So far now, it’s a temporary halt, pause or ban, as you may call it. For the right reasons, though, I think RBI is taking the right steps. action to ensure that the whole ecosystem,” the financial services expert added.