RBI clamps down on credit cards for commercial use

The Reserve Bank of India (RBI) has halted businesses from paying each other via credit cards, by ordering card networks Visa and Mastercard to stop all such payments.

- Gopika Gopakumar & Shayan Ghosh

Businesses typically pay their vendors by bank transfers or commercial credit cards, sometimes mediated by fintechs. The latter are called business payment service provider (BPSP) transactions, now suspended by RBI.

While the exact reason for the abrupt move is not known, Arpit Ratan, co-founder and chief business officer of Signzy, a digital banking infrastructure provider, said that RBI's concern seems to come from the fact that certain recipients of card transactions may not be registered merchants, something that is not allowed by the KYC regime.

KYC stands for know your customer.

"In case of peer-to-peer transactions, cards were never allowed, and even today you cannot pay some individual by your card. On the other hand, business-to-business payments were to be made through fund transfers like RTGS (real-time gross settlement), NEFT (national electronic fund transfer), cheques, etc," said Ratan. Cards are meant to be used at physical and online merchants, and there is an entire KYC process to follow when merchants are registered and onboarded, he added.