RBI Directs Visa and Mastercard to Halt Card-Based Commercial Payments: What You Need to Know

In a recent development, the Reserve Bank of India (RBI) has directed card networks Visa and Mastercard to suspend card-based commercial payments through payment service providers and companies. While the central bank has not officially disclosed the reasons behind the directive, reports suggest concerns regarding unauthorized transactions at outlets not sanctioned to accept such payments.

On January 31, the RBI barred Paytm from offering all its core services — including accounts and wallets — from March, effectively crippling the company’s business citing many KYC and other issues.

The regulatory action comes in the wake of heightened scrutiny in the fintech sector, following recent regulatory measures against leading payment platform Paytm. The RBI’s move underscores its commitment to maintaining the integrity and security of digital transactions while ensuring adherence to regulatory standards.

Fintech companies operating in the segment have reportedly facilitated transactions, such as tuition fees and rentals, through card-based payments, despite lacking authorization to accept such payments. This potential violation of the Payment and Settlement Systems Act, 2007, raises concerns regarding compliance and consumer protection.

Visa, in communication with fintechs, emphasized the directive from the regulator to suspend Business Payment Service Provider (BPSP) transactions until further notice. Failure to comply with these instructions could result in regulatory sanctions and non-compliance assessments under Visa rules, highlighting the gravity of the situation.

While specific details regarding the RBI’s directive remain undisclosed, industry insiders suggest that the central bank aims to ensure fintech players and service providers operate within the regulatory framework. Addressing potential KYC (Know Your Customer) issues, the RBI seeks to mitigate the risk of fraudulent or unauthorized transactions in the digital ecosystem.

The regulatory intervention reflects the RBI’s proactive approach towards safeguarding the interests of consumers and promoting financial stability in the digital era. The recent directive serves as a reminder of the evolving regulatory landscape in the fintech sector and the imperative for industry stakeholders to uphold compliance standards.

The RBI’s decision follows its action against Paytm, wherein the company was barred from offering core services, including accounts and wallets, citing multiple KYC and operational concerns. These measures underscore the regulator’s commitment to maintaining robust oversight and ensuring the integrity of India’s digital payment ecosystem.

As the fintech industry continues to evolve, regulatory compliance and consumer protection remain paramount. Industry participants are urged to remain vigilant and proactive in adhering to regulatory requirements to foster trust and confidence in digital financial services.