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RBI cracks down on fintechs
In a recent development, more fintech companies could be facing regulatory action due to lapses in Know Your Customer (KYC) compliance. This follows the RBI’s initiation of regulatory actions against Paytm Payments Bank.
The Reserve Bank of India (RBI) has instructed global payment giants Visa and Mastercard to suspend card-based commercial transactions by both small and large businesses due to concerns over KYC compliance.
Visa has acknowledged receiving the regulatory communication dated February 8, while awaiting a response from Mastercard.
This directive from the RBI is part of a broader crackdown on non-compliance within the payments sector, as evidenced by recent actions against Paytm Payments Bank.
Industry insiders suggest that the central bank’s intervention with Visa and Mastercard is due to observed lapses in adhering to KYC norms.
Transactions at various business establishments, potentially lacking authorization for commercial card payments, have been instructed to be temporarily halted.
Visa India confirmed receiving communication from the RBI on February 8, highlighting a request for information regarding the role of Business Payment Solution Providers (BPSPs) in commercial transactions. The directive included instructions to suspend all BPSP transactions until further notice.
BPSPs operate under RBI regulations and licensing, specifically under the PA-PG guidelines. Visa is actively engaging in discussions with the RBI and ecosystem partners to ensure regulatory compliance.
However, Visa noted that greater clarity on the matter may be provided by BPSPs themselves rather than by the company.
Sources within the industry have revealed that several fintech firms have also received directives from the RBI to pause commercial card payments until further instructions.
There are concerns among industry players regarding the potential impact on various transactions, including rental and tuition fee payments, as platforms like Cred, Paytm, and Nobroker facilitate such payments using commercial, credit, and debit cards.
Businesses primarily rely on net banking/NEFT or RTGS for large transfers, which operate round the clock.
Fintech entities such as Enkash and Paymate facilitate commercial card payments for various business requirements, including vendor and supplier payments.
