RBI Takes Action Against Unauthorized Payment System in Card Network Intermediary

Unauthorized Payment System Involving Card Networks: RBI Takes Action

The Reserve Bank of India has discovered that a certain Card Network had set up a system allowing businesses to make card payments through intermediaries to entities that don't accept card payments.

1. In this setup, the intermediary takes card payments from companies for their commercial transactions and then transfers the funds to non-card-accepting recipients using IMPS/RTGS/NEFT.

2. Upon investigation, it was found that this setup qualified as a payment system. According to the Payment and Settlement Systems (PSS) Act, 2007, any such payment system needs authorization under Section 4 of the PSS Act. However, no such authorization had been obtained, rendering the activity unauthorized.

4. The arrangement has raised the following concerns:

- The intermediary pooled a large amount of funds into an account not designated under the PSS Act.

- Transactions processed under this arrangement didn't meet the originator and beneficiary information requirements outlined in the Reserve Bank's Master Direction on KYC.

5. According to available information, only one card network has implemented this arrangement in the country so far.

6. Since the matter is under detailed examination, the Card Network has been instructed to suspend all such arrangements until further notice. It's important to note that the Reserve Bank hasn't imposed any restrictions on the normal use of business credit cards.

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