Visa, Mastercard, Banks meet RBI officials to clarify BPSP business model

"It is quite likely that the protocol fell outside the purview of RBI's existing guidelines for the PA space," said a fintech founder, whose company issues corporate cards. Usually, a PA firm would be involved in such a process but in this case that was not the case as BPSP predates RBI's PA guidelines.

BPSP started around 2017 as a solution to let small businesses accept card payments without having a card terminal to their account.

Before BPSP, these payments were often made by the corporates through their RTGS and NEFT account transfers, which are debit transactions. BPSP allowed them to make credit payments.

The business is believed to be doing around Rs 25,000-30,000 crore worth of monthly turnover and is dominated by EnKash and Paymate.

"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,” Visa said in an email statement.

These credit cards issued by banks are based on the credit line provided by the banks to large corporations to make vendor payments to small businesses. BPSP allows for these corporates to transfer money to small vendors, who don't have the facility of payment terminals to accept card payments.

Both EnKash and Paymate did not respond to Moneycontrol emails requesting comments. RBI did not offer any comments.

"However, the current accounts with banks are the final beneficiaries and have generally gone through the proper Know Your Customer (KYC) process and there is no need for such a kneejerk reaction from the regulator," Said a said a senior bank executive, who did not wish to be identified.

The corporates that make these payments are also well-known large companies for the banks and such cards are issued after a good amount of due diligence, he said.

"This is a case of RBI not knowing this was happening and how or what the processes are. Multiple people from corporates have to approve before the money is transferred to the end-user," the banker added.

According to a senior card network executive, RBI likely wants clarity on who the end users are and for what purpose the money is being used and once those issues are discussed, the business will be given a green signal.

"There could be a new set of guidelines under the existing PA license, but that will take some time. We will be able to start the business soon," the person said.

The fintech founder said that the regulatory concerns could be around issues like credit cards being used to make rent payments, not all of which can be kosher.

"There are some regulatory concerns that some of these are not genuine vendors or the money has also been transferred to suppliers who are not part of the corporate account," he said adding that banks and fintechs issuing the cards will have to clarify this.

For credit card payments the networks — Visa and Mastercard — usually have a blacklist of merchants who are suspicious and such transactions are automatically flagged. However, for BPSP payments, there are no restrictions or a blacklist of suppliers, said the card executive quoted above.