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| RBI's Directive: Halting Business Payment Solution Providers (BPSPs) |
The recent directive from the Reserve Bank of India (RBI) has mandated prominent card networks such as Visa and Mastercard to immediately cease enabling commercial transactions facilitated by a class of entities known as Business Payment Solution Providers (BPSPs). This directive comes in light of concerns regarding compliance issues among merchants. Here's a breakdown of the key points and implications of this directive:
Definition of BPSPs:
Business Payment Solution Providers (BPSPs) are intermediaries that facilitate business-to-business (B2B) payments. They offer a platform for corporates to securely pay suppliers and vendors using virtual credit cards, especially when these suppliers lack the infrastructure to handle such transactions directly.
BPSP Transactions Modality:
BPSPs manage the entire payment process, from onboarding registered businesses to settlement of payments via settlement accounts. Payments are typically made through RTGS and NEFT transfers, allowing businesses to accept card payments even without the necessary infrastructure.
RBI’s Concerns:
While BPSPs are regulated and licensed by the RBI under the Payment Aggregators and Payment Gateways guidelines, the RBI is concerned about the lack of KYC documentation and details regarding the end utilization of funds routed through BPSPs. This raises issues regarding tracking the source of funds and potential misuse.
Implications of Restriction:
The directive directly impacts specialized BPSP providers such as EnKash, Kodo, and Happay, as well as card networks that enable transactions through these entities.
BPSP Utility for Businesses:
BPSPs play a crucial role in facilitating urgent B2B payments, particularly for beneficiaries who may not have credit card acceptance infrastructure in place.
Response from Card Networks:
Visa has confirmed receipt of the RBI's communication and is engaging with regulators and ecosystem partners to ensure compliance requirements are met for the restoration of BPSP services.
Growth of Commercial Cards:
BPSPs represent a subset of the commercial cards segment, which has witnessed rapid adoption by corporates, startups, and SMEs for efficient management of expenses and cash flows.
Reasons for Regulatory Scrutiny:
The RBI's scrutiny follows instances of dubious practices, including transactions with unregistered merchants, personal payments mislabeled as business transactions, and bypassing merchant onboarding rules.