The Reserve Bank of India’s directive to Visa and Mastercard to halt all card-based business-to-business payments in the country has begun raising questions. Although no official answer has been given, experts are speculating it is related to a crackdown on Know Your Customer (KYC) regulations.
The RBI, India’s central bank, confirmed that the decision will not affect all corporate card payments; only commercial transactions routed through third parties. If the RBI had suspended all B2B payments, it might have been seen as a move intended to curtail credit card challengers to its UPI instant payments system, but that is not the case. It’s worth noting that in India, as in Brazil, instant payments via domestic networks are the most popular form of payments, far exceeding credit cards.
In India, a subset of fintech firms operate in a category called “business payment solution providers” (BPSPs), enabling payments to merchants that do not accept card payments for a fee. The targeted companies appear to all be fintechs that are not in compliance with India’s payment regulations.
Searching for an Explanation
So far, the RBI has declined to explain why it has placed these restrictions, reportedly withholding information even from the affected companies. “Visa received a communication from the RBI on February 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,” a Visa India spokesperson said in a statement.
Some news sources are asserting that the RBI is primarily concerned about money flowing through merchants without strong KYC protocols. Indian news channel NDTV obtained a document from the RBI alleging that one of the card networks had created an arrangement with intermediaries to create an unauthorized payment system. The intermediary would accept card payments for commercial payments and then route the funds via digital payments to non-card-accepting recipients.
“The primary institutions that should take note of this are financial institutions or card schemes that sponsor fintechs via banking-as-a-service plays and BIN [Banking Identification Number] sponsorships,” said Albert Bodine, Director of Commercial and Enterprise Payments at Javelin Strategy & Research. “KYC is a big problem in these scenarios, because the fintechs add another link in the chain and decrease visibility, but the sponsoring entity still has full responsibility for KYC policy.”
