RBI bans Fintechs from providing Business Credit Cards due to KYC concerns

The Reserve Bank of India (RBI) has directed payment networks Visa and Mastercard to stop supporting business credit card issuers by fintech aggregators, commonly known as business payment solution providers.

Business credit cards are issued to businesses rather than consumers. These are used to make vendor payments and serve as a substitute for working capital for businesses.

Historically, banks have issued these cards to corporations. In recent years, fintechs have issued such cards, allowing vendors to accept payments via credit card networks.

When contacted, Visa confirmed the developments. “On Thursday, February 8, Visa received a communication from the RBI in what appears to be an industry-wide request for information on the role of BPSPs in commercial and business payments. “That communication included the direction to hold all BPSP transactions in abeyance,” the business stated in a statement.

“It is essential to remember that the RBI regulates and licenses BPSPs under the payment aggregator/payment gateway rules. Visa is proactively engaged and continues to hold discussions with the RBI and other ecosystem partners to ensure compliance,” the statement said.

Banks stated that the RBI’s concerns emerged from the fact that the issuance was taking place through firms that were not authorized to issue cards.

Secondly, company credit cards must be limited in their use for certain transactions. The central bank was particularly concerned that these instruments if issued by non-banks to facilitate payments to merchants who are not officially onboarded with the card acceptance network, could circumvent KYC regulations.

According to a senior banker, the impact on the credit card business will be minimal because aggregators have a small market share. He stated that loans to small enterprises would not be impacted, since they could continue to obtain credit lines from banks and use them for working capital.