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Visa, Mastercard Halt Biz Payments: KYC Blitz Hits Fintech!
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Visa, Mastercard Halt Biz Payments: KYC Blitz Hits Fintech!

Feb 15, 2024

The Indian payments landscape witnessed a significant development recently when the Reserve Bank of India (RBI) directed global giants Visa and Mastercard to halt commercial card transactions immediately. This unexpected move, following regulatory actions against Paytm Payments Bank, throws the spotlight on concerns surrounding Know Your Customer (KYC) compliance within the burgeoning fintech sector.

Visa Mastercard payments halt

Regulatory Crackdown: KYC Lapses in Focus

Industry sources reveal that the RBI’s intervention stems from observed lapses in KYC norms during business-to-business (B2B) transactions involving commercial cards. We have put these transactions, potentially conducted at establishments unauthorized for such payments, on hold until further notice.

While awaiting an official response from Mastercard, Visa confirmed receiving the communication on February 8th. The directive emphasizes an industry-wide review of Business Payment Solution Providers (BPSPs) involved in facilitating these commercial transactions. Notably, BPSPs operate under RBI regulations and licensing within the PA-PG (Payment Aggregators – Payment Gateways) framework.

Visa, in its response, highlighted its commitment to collaborating with the RBI and industry partners to ensure compliance. However, the company clarified that further clarity on the specific concerns might be better elucidated by the BPSPs themselves.

Fintech Firms Feel the Heat

The RBI’s directive extends beyond Visa and Mastercard, with several fintech firms reportedly receiving similar instructions to pause commercial card payments. Industry players express concerns about the potential impact on various transactions, including rental and tuition fee payments facilitated by platforms like Cred, Paytm, and Nobroker using commercial cards.

It’s crucial to note that businesses primarily rely on net banking/NEFT or RTGS for large transfers, which operate seamlessly. However, fintech platforms like Enkash and Paymate specialize in facilitating commercial card payments for various business needs, including vendor and supplier payments. These players now face uncertainties as they await further clarity from the regulatory body.

Unveiling the Grey Areas: KYC & Transparency Concerns

While the exact nature of the KYC lapses remains undisclosed, experts point towards potential grey areas in transaction routing and data transparency. Industry sources suggest that there have been instances where people made card-to-peer or card-to-business payments for bills or rent. This violates regulations because the merchants were either unregistered or ineligible for commercial card payments.

Furthermore, concerns exist regarding cases where payments were channelled through a parent merchant before being distributed to underlying merchants, circumventing the regulatory intent of card payments aimed solely at point-of-sale (PoS) transactions.

Arpit Ratan, Co-founder & CBO at Signzy, emphasizes the regulatory restrictions on card transactions specifically pertaining to P2M payments, requiring adherence to specific KYC guidelines and risk profiling for merchants.

The Road Ahead: Compliance & Collaboration

The RBI’s actions signal a stricter regulatory stance towards ensuring KYC compliance and transparent transaction flows within the fintech sector. While the short-term impact might cause temporary disruptions, industry experts view it as a necessary step towards strengthening the ecosystem and mitigating potential financial risks.

The onus now lies on both fintech firms and card networks to actively collaborate with the RBI to address the identified concerns. Implementing robust KYC procedures, ensuring transaction transparency, and adhering to regulatory guidelines will be crucial to navigate this critical juncture.

This regulatory intervention presents an opportunity for the fintech sector to mature and evolve through responsible practices. By prioritizing compliance and building trust with the regulator, fintech players can continue to play a transformative role in shaping the future of Indian payments.

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