In a significant move, the Reserve Bank of India (RBI) has issued a directive instructing intermediaries to halt card payments for entities that do not directly accept such payments. The directive, while not explicitly naming Visa, has far-reaching implications for the more than a million cardholders who are now caught in the midst of this regulatory storm.
The RBI’s directive highlights a specific card network without explicitly mentioning Visa, stating that this network has implemented a system that is currently under investigation. No official statement regarding Visa has been released by the central bank.
The central bank’s instruction includes the suspension of all arrangements related to card networks until further notice, emphasizing the need for a thorough investigation. The concern arises from a certain arrangement within a card network that enables entities not accepting card payments to receive funds through intermediaries.
In this arrangement, intermediary companies facilitate commercial payments through cards and subsequently transfer the funds to non-card-accepting recipients via IMPS/RTGS/NEFT channels.
Upon careful examination, the RBI concluded that this arrangement qualifies as a payment system. Under the provisions of the Payment and Settlement Systems (PSS) Act, 2007, such payment systems require authorization from the regulator, which, in this case, was lacking. As a result, the entire process was deemed unauthorized and without legal approval.
In Shorts:
- RBI instructs intermediaries to cease card payments for entities not directly accepting them.
- Over a million VISA cardholders affected by the regulatory directive.
- Central bank cites unauthorized payment system under investigation.
- Suspension of card network arrangements mandated until further orders.
- Entities using intermediaries for card payments face uncertainty amid RBI crackdown.
