RBI RESTRICTS BPSP TRANSACTIONS: ADDRESSING COMPLIANCE CONCERNS IN B2B PAYMENTS

 

INTRODUCTION:

The Reserve Bank of India (RBI) has recently issued directives to prominent card networks like Visa and Mastercard, instructing them to halt commercial transactions facilitated by Business Payment Solution Providers (BPSPs).

RBI announced that the Card-based business-to-business payments made through payment intermediaries have been stopped since they violated the Payment and Settlement Systems Act, 2007.

The regulator also said the arrangement did not comply with the requirements stipulated under the master direction on KYC (know your customer) as issued by the RBI.

This action comes amidst concerns regarding compliance with regulatory frameworks and the potential misuse of funds in business-to-business (B2B) payments. In this article, we delve into the intricacies of BPSP transactions, the regulatory concerns raised by the RBI, the implications of the restrictions, and the responses from stakeholders involved.

 

UNDERSTANDING BUSINESS PAYMENT SOLUTION PROVIDERS (BPSPS):

BPSPs serve as intermediaries facilitating B2B payments, allowing corporates to securely transact with suppliers and vendors using virtual credit cards. These providers offer an online platform for managing the entire payment process, from onboarding registered businesses to settlement of payments via designated accounts. BPSPs enable businesses to make payments to smaller suppliers who may lack infrastructure for accepting credit card payments directly. This niche service addresses the need for efficient B2B payment solutions, particularly for urgent transactions where traditional mechanisms may be lacking.

 

MODALITY OF BPSP TRANSACTIONS:

Typically, BPSP transactions involve corporates making payments through RTGS and NEFT transfers to suppliers facilitated by the BPSP platform. By leveraging virtual credit cards, businesses can extend payment options to suppliers without requiring them to have credit card acceptance infrastructure. This modality streamlines the payment process, enhancing cash flow management for both parties involved.

 

RBI'S COMPLIANCE CONCERNS:

While BPSPs operate under regulatory frameworks established by the RBI, concerns have arisen regarding compliance with KYC norms and the transparency of fund utilization. The RBI highlights the absence of adequate KYC documentation and details on the end-use of funds routed through BPSPs, raising apprehensions about potential misuse and the difficulty in tracking the source of funds. This lack of compliance with regulatory directives poses inherent risks to the integrity of the payment system and necessitates regulatory intervention to mitigate such risks.

 

IMPLICATIONS OF REGULATORY RESTRICTIONS:

The RBI's directives to halt BPSP transactions have direct implications for specialized providers such as EnKash, Kodo, and Happay, which offer virtual commercial card payment solutions. Additionally, card networks like Visa and Mastercard are mandated to cease enabling transactions through these entities. The regulatory restrictions disrupt the operations of BPSPs and impact businesses reliant on their services for efficient B2B payments. However, these measures are essential to address compliance deficiencies and safeguard the integrity of the payment ecosystem.

 

UTILITY OF BPSPS FOR BUSINESSES:

Despite the regulatory challenges, BPSPs play a vital role in facilitating B2B payments, particularly for businesses with limited credit card acceptance infrastructure. By offering secure and convenient payment solutions, BPSPs contribute to improving cash flow management and enhancing operational efficiency for corporates, startups, and SMEs. The utility of BPSPs underscores the importance of addressing compliance issues while preserving the benefits they offer to businesses.

 

RESPONSE FROM STAKEHOLDERS:

In response to the RBI's directives, card networks like Visa have acknowledged the regulatory communication and expressed their commitment to ensuring compliance requirements are met. Visa's engagement with regulators and ecosystem partners reflects a proactive approach to addressing regulatory concerns and restoring BPSP services in alignment with regulatory frameworks. Such collaborative efforts are crucial in navigating regulatory challenges and maintaining the integrity of the payment ecosystem.

 

GROWTH OF COMMERCIAL CARDS:

BPSPs represent a subset of the commercial cards segment, which has witnessed rapid adoption among corporates, startups, and SMEs seeking efficient B2B payment solutions. The growth trajectory of commercial cards underscores the evolving needs of businesses and the importance of innovative payment mechanisms in driving financial efficiency and transparency.

 

REASONS FOR REGULATORY SCRUTINY:

The RBI's scrutiny of BPSP transactions follows instances of dubious practices, including transactions involving unregistered merchants, misclassification of personal payments as business transactions, and bypassing merchant onboarding rules. These practices undermine the regulatory framework and necessitate stringent oversight to prevent potential misuse of the payment system.

 

CONCLUSION:

The RBI's directives to restrict BPSP transactions underscore the importance of compliance with regulatory frameworks in safeguarding the integrity and security of the payment ecosystem. While these measures may pose temporary challenges for businesses and service providers, they are essential to address compliance deficiencies and mitigate risks associated with B2B payments. Moving forward, collaborative efforts between regulators, card networks, and BPSPs are crucial in ensuring adherence to regulatory standards while preserving the utility and efficiency of B2B payment solutions.

 

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Article Compiled by:-

Mayank Garg

(LegalMantra.net Team)

+91 9582627751

Disclaimer: Every effort has been made to avoid errors or omissions in this material in spite of this, errors may creep in. Any mistake, error or discrepancy noted may be brought to our notice which shall be taken care of in the next edition In no event the author shall be liable for any direct indirect, special or incidental damage resulting from or arising out of or in connection with the use of this information Many sources have been considered including Newspapers, Journals, Bare Acts, Case Materials , Charted Secretary, Research Papers etc.

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