The Reserve Bank of India (RBI) in the latest move has asked Mastercard and Visa to suspend card-based commercial payments made by both small and large businesses. This decision was taken by the bank on February 8, which has raised concerns and questions within the Indian financial sector. A letter issued by the banking regulator directs the firms to suspend all business payment solution providers (BPSP) transactions till further notice.Why did the RBI ask thisThe official reason hasnt been disclosed by the RBI, but industry experts suspect concerns over Know Your Customer (KYC) compliance might be the main driver. Some suspect that transactions were happening at outlets not authorized to accept commercial card payments. Fintech firms might be allowing customers to use cards for payments where authorization isnt clear.Apart from this, there could be suspicions of fraud or money laundering in some high-value transactions.What does this mean for businessesCompanies can no longer make commercial payments using cards for the time being. This has impacted some fintech companies who offer solutions for such payments. While companies typically make payments through net banking or real time gross settlement (RTGS), some fintechs facilitate payments through cards for purposes like payments to suppliers and vendors. The total monthly transaction size of such payments is in excess of Rs 20,000 crore, said industry players. Alternative arrangements like direct bank transfers or other approved methods might be needed.Whats the current situationBoth Visa and Mastercard have acknowledged the directive and are complying. Meanwhile, the fintech companies are exploring alternative solutions. However, the RBI hasnt provided a timeline for when the suspension might be lifted.Notably, this move could disrupt business operations for companies reliant on card-based commercial payments. It might push for stricter KYC compliance standards in the fintech sector.
