Bangalore: In a surprising turn of events, the Reserve Bank of India (RBI) has instructed card networks such as Visa and Mastercard to halt card-based commercial payments made by corporations and small businesses.

Industry sources have reported a temporary cessation of transactions at various business outlets that may lack authorization to accept card payments.

Although the precise reason behind the directive remains unclear, sources suggest that the flow of funds through card transactions to non-KYC-compliant merchants has raised concerns for the regulator. While these merchants' bank accounts may be KYC-compliant, they typically lack authorization to accept card payments.

According to a founder of a fintech startup who prefers to remain anonymous, fintech companies operating in this sector have received instructions to suspend business payments made through commercial cards until further notice.

The founder further noted potential impacts on rental and tuition payments, with some fintech firms considering halting these transactions as well. Currently, consumers can make rental payments via card through platforms such as Cred, Paytm, and NoBroker.

Queries sent via email to Visa and Mastercard have not yet received a response.

Traditionally, business payments are conducted via net banking or bulk transfers managed by the RBI, such as RTGS (Real Time Gross Settlements). However, fintech companies and card networks have facilitated the process of making business payments through cards. Fintech firms like Enkash and Paymate facilitate payments through commercial cards for various business needs, including vendor and supplier payments.

Ajay Adiseshann, CEO of Paymate, a major player in the business payments space supported by Visa, stated, "We have paused operations following the guidelines but have made alternate arrangements to ensure compliance and avoid disruption to business payments."

While the regulatory action has caught the industry off guard, the exact rationale behind it remains undisclosed. Speculations suggest it could be linked to payment aggregator guidelines or concerns over unauthorized card usage for transactions like tuition fees and rentals.

Some believe the directive could be prompted by fintech platforms allowing consumers to use cards for payments without proper authorization, potentially circumventing regulatory directives.

Fintech founders impacted by the move anticipate a review of the process and plan to make representations to the RBI. They emphasize the importance of allowing vendor payments, which are conducted through regulated banking channels, to continue uninterrupted.

In light of potential regulatory actions against Paytm Payments Bank, fintech founders affirm their commitment to compliance and express willingness to halt payments through this route until clarity is provided by the regulator.

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