Visa, Mastercard top executives meet RBI officials after BPSP biz hit

Banking regulator issue directions to card networks, fintechs to put on hold all commercial card-based transactions made by firms

Top executives of Visa and Mastercard on Wednesday met the Reserve Bank of India (RBI) officials, after the central bank asked the card networks to pause commercial card-based payments being made by corporates and businesses.

RBI issued directions to card networks and financial technology firms on February 8 to put on hold all commercial card-based transactions made by companies, people close to the development said.  

The commercial card market in India is expected to reach $60 billion by FY26 from $20 billion in FY22. 

According to RedSeer estimates, the global commercial card market is expected to reach around $5 trillion by 2025. 

“Visa received a communication from the RBI on February 8, in what appears to be an industry-wide request for information on the role of business payment solution providers (BPSPs) in commercial and business payments. That communication included the direction that we hold all BPSP transactions in abeyance,” the card network said in response to queries sent by Business Standard. 

Mastercard did not respond to Business Standard’s queries.

An email query sent to the RBI on the issue remained unanswered till the time of going to the press. 

The flow of funds through commercial cards to merchants or vendors that may have not followed the Know Your Customer (KYC) procedures may have prompted the action, a person in the know said. 

A commercial card is used for payments by companies as opposed to retail cards as it is a business payment card. 

“It is like a credit card but for business purposes given to various organisations to their employees for business-related transactions. Sometimes it can be a virtual card as well,” a fintech industry official said.  

While the exact impact of the RBI move could not be ascertained immediately, commercial credit card forms around 0.26 per cent of the total B2B payments market in India as of FY22, according to RedSeer data.

Meanwhile, other modes of B2B payments such as cash and cheque, NEFT, and RTGS contributed 45 per cent, 10 per cent, and 45 per cent respectively, during the same period. 

In India, fintech companies such as PayMate, and Enkash, among others process payments made via commercial cards. The companies did not respond to queries sent by Business Standard till press time. 

Meanwhile, a BPSP enables business-to-business (B2B) payments for non-card-accepting suppliers for transactions such as payrolls, invoices, and rent, among others, according to Visa’s website.  

Visa explained that BPSPs are regulated by the central bank under the Payment Aggregators (PA) and Payment Gateways (PG) guidelines. 

“It is important to note that BPSPs are regulated and licensed by the RBI under the PA PG guidelines. Visa is proactively engaged and continues to be in discussions with the RBI and our ecosystem partners to ensure compliance. If you have further questions, those may be better directed to the BPSPs,” it added. 

Typically, companies transact with their vendors or suppliers using net banking facilities, National Electronic Funds Transfer (NEFT), and Real Time Gross Settlement (RTGS). 

However, commercial cards enable businesses to have a certain period of free credit which allows companies to arrange for working capital requirements. 

“There are transactions between a large business and their vendors. Commercial cards are popular across the globe. In a supply chain, instead of giving credit, they work with banks and give a commercial card where large values can be there for business transactions,” the fintech official quoted above said. 

Corporates use it since they get benefits, points, or a free credit period. 

Meanwhile, to bridge the gap between large players wanting to use their commercial cards and small players wanting to accept this payment method, the BPSP acts as an intermediary in between, a person in the know explained. 

“The RBI has reached out to players with a request for information on BPSPs, essentially to understand how it works, and what it does, among others. Firms are working with RBI to see where this goes from here, and if the regulator is looking for a solution or something else,” a person in the know said.