The Reserve Bank of India has asked Visa to temporarily suspend commercial card-based payments.
Visa has received communication from the RBI asking to halt these payments being made by corporations and businesses, according to an official statement by the company.
Commercial credit and debit cards are provided by employers to specific employees for business-related expenses such as travel bookings and vendor payments.
The regulator on Feb. 8 asked Visa to ensure that all Business Payment Solution Provider transactions are kept in abeyance until further notice, Visa said. RBI also sought information on the role of BPSP in commercial and business payments.
"Visa received a communication from the RBI on Thursday, Feb. 8 in what appears to be an industry-wide request for information on the role of business payment solution providers (BPSPs) in commercial and business payments. That communication included the direction that we hold all BPSP transactions in abeyance," the company said in a statement.
Visa also said it was engaged in discussions with the RBI and BPSPs about the development.
Media reports initially suggested that Mastercard, too, has been asked by the RBI to halt commercial card-based payments in a similar communication.
However, according to a RBI circular dated Feb 15., only one card network breached rules on commercial card payments. It said that one card network had created an unauthorised payment system to drive such payments.
The card network created an arrangement, where an intermediary would accept card payments from corporates for their commercial payments and then remit the funds. This was done via digital payment routes to non-card accepting recipients.
Commercial Card-Based Business Payments
The area of concern here are the commercial cards and business payments made via them, the arrangement of which by the affected card network was not permitted by the RBI.
According to a RedSeer report from May 2022, formalized MSMEs and corporates are the target customers for commercial credit card offerings. This card forms around 0.26% of the total business-to-business payments market in India and is expected to grow to capture 0.6% market share by fiscal 2026, it said.
According to a person with knowledge of the matter, a significant chunk of business for a card network like Visa comes from the commercial card segment, offered for business transactions.
It enables enterprises to get a credit line for making B2B payments like vendor payments, business expenses, tax payments and so on. In this context, a facility by BPSPs allow for these corporates to transfer money to small vendors who don't have a facility to accept card payments via payment terminals.
But the problem is that there is an end beneficiary, on the other side of the payment process, that can't be tracked by the RBI, the person said.
And this is because of a lack of Know-Your-Customer details, according to two people with knowledge of the matter.
Another person aware of the matter explained that when you pay to a vendor via this commercial card, there is no provision of a proper KYC process. And in its absence, it becomes unclear if the vendor is approved to receive any payments of that nature or not.
Without KYC, there is no record in the public domain of these transactions and no way to ascertain if payments are legitimate, the first person quoted above said.
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