Why is it in the News?

The Reserve Bank of India (RBI) has ordered a certain card network to stop “unauthorised payments” made using business cards.

What is a Card Network?

• Card networks connect banks, merchants, and customers (card users) to one another so that transactions can be carried out smoothly and securely.
• Card networks are operating in the background every time a customer uses her card to make a payment.
• There are five authorised card networks in India:
  • Visa
  • Mastercard
  • RuPay
  • Diners Club, and
  • American Express

Reasons Behind the RBI Order:

• Payments to Non-Card-Accepting Entities: The network facilitated card payments from corporations for commercial transactions, transferring the funds to non-card-accepting recipients via IMPS, RTGS, or NEFT without proper authorization, violating the Payment and Settlement Systems (PSS) Act, 2007.
• Non-Adherence to KYC Requirements: Additionally, the RBI expressed concerns regarding non-compliance with Know Your Customer (KYC) norms in these transactions.

What are the RBI’s Concerns?

• Under Section 4 of the PSS Act, such a payment system requires authorisation, which had not been obtained in this case.
• There were two other concerns as well.
  • First, the intermediary in such an arrangement pooled a large amount of funds into an account that was not a designated account under the PSS Act.
  • Second, transactions processed under this arrangement did not comply with the ‘originator and beneficiary information’ requirements, as stipulated under the ‘Master Direction on KYC’ issued by the RBI.
• Steps taken by the RBI: The RBI has instructed the card network to suspend all such arrangements until further notice.
  • However, regular usage of business credit cards remains unaffected.