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The Reserve Bank of India has observed that a Card Network had introduced an arrangement allowing businesses to make card payments through certain intermediaries to entities that do not directly accept card payments. In this setup, the intermediary received card payments from corporates for commercial transactions and subsequently transferred the funds to non-card-accepting beneficiaries using IMPS, RTGS, or NEFT.
Upon examination, the RBI found that the structure of this arrangement met the definition of a payment system. Under the Payment and Settlement Systems Act, 2007, any such system requires prior authorization under Section 4, which had not been obtained. The activity therefore lacked legal sanction. The RBI also identified concerns related to the pooling of large funds in accounts that were not designated under the PSS Act and the failure to comply with originator and beneficiary information requirements mandated under the Master Direction on KYC.
According to available information, only one card network had implemented this mechanism in India. As the matter is being closely reviewed, the Card Network has been instructed to keep all such arrangements on hold until further notice. The RBI has clarified that these directions do not restrict the normal use of business credit cards.
[RBI]