By Siddhi Nayak, Jaspreet Kalra and Swati Bhat
BENGALURU (Reuters) -The Reserve Bank of India has ordered Visa to stop using an unauthorized route to make business-to-business (B2B) card payments, two sources familiar with the matter said on Thursday, the latest clampdown by the financial regulator in the fast-changing payment sector.
Earlier in the day, the central bank said it had asked a card company, which it did not name, to stop routing some commercial payments through third-party intermediaries as they did not comply with payment and customer identification rules.
“The activity was … without legal sanction,” it said in a statement.
Business-to-business payments via cards include payments by businesses to their vendors and in some cases tax payments by small units.
The action is RBI’s latest amid its tightened scrutiny of the processes followed by financial technology, or fintech, companies.
Two weeks back, it ordered the banking unit of Paytm, one of India’s largest fintech firms, to wind down due to “supervisory concerns,” including inadequate checks on customer accounts.
On Thursday, the RBI said commercial card payments routed through a third party raised two concerns: large amounts of funds being pooled into an account of the intermediary and inadequate information on who the funds were going to.
The central bank said it asked the card network to keep all such arrangements “under abeyance” while it examined the matter but that the normal usage of business credit cards was allowed.
Visa had said on Wednesday that it had received “what appears to be an industry-wide request” from the RBI for information on the role of business payment solution providers (BPSPs) in commercial and business payments and to hold off on all such transactions.
No estimates were available on the financial impact on Visa’s business in India.
Visa did not immediately respond to a request for comment following the RBI’s statement.
LAYERED TRANSACTION
B2B card payments have been growing in India and, according to consulting firm RedSeer’s estimates, will increase to $9 trillion to $10 trillion by fiscal 2026, with commercial credit cards increasing their share to 0.6% of that.
These payments are layered with the business at one end making a card payment to the intermediary, which then transfers money to the recipient’s bank account.
While regular card transactions can be tracked end-to-end, going via an intermediary can make it difficult to identify the recipient of the funds, two bankers who are familiar with the business model said.
They declined to be identified as they aren’t authorised to speak to the media.
While the intermediaries do collect identification, it may not be in line with the central bank’s requirements, these bankers said.
(Reporting by Siddhi Nayak, Jaspreet Kalra and Swati Bhat in Mumbai; Additional reporting by Indranil Sarkar in Bengaluru Editing by Savio D’Souza)
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