On the RBI putting restraints on a certain card network

Source: This post on the RBI putting restraints on a certain card network has been created based on the article “Why has RBI put restraints on a certain card network?” published in “Indian Express” on 17^th February 2024.

UPSC Syllabus Topic: GS Paper 2 Indian Polity – Statutory, regulatory and various quasi-judicial bodies.

News: The article discusses the recent decision of the RBI to put restraints on a certain card network in India due to concerns over wrongdoings.

Read in detail about Payment Regulation in India here.

Background:

There are 5 card networks in India: Visa, Mastercard, RuPay, Diners Club, AmEx. RBI has ordered a certain card network (without naming it) to stop “unauthorised payments” made using business cards.

Note: Card networks connect banks, merchants, and customers (card users) to one another so that transactions can be carried out smoothly and securely.

What are the reasons behind the RBI order?

1. Payments to Non-Card-Accepting Entities: The network was accepting card payments from corporates for their commercial payments, and was then remitting the funds (via IMPS, RTGS, or NEFT) to non-card accepting recipients.
   Such a payment system requires authorisation, which had not been obtained. This is a violation of the Payment and Settlement Systems (PSS) Act, 2007.
2. Non-Compliance of KYC Norms: RBI also raised concerns over non-compliance of Know Your Customer (KYC) norms in such transactions.

What are the RBI’s concerns?

1) First, the card network put a large amount of funds into an account that was not a designated account under the PSS Act.

2) Second, these transactions did not comply with the ‘originator and beneficiary information’ requirements, as required under the ‘Master Direction on KYC’ issued by the RBI.

Question for practice:

Why has the RBI ordered a certain card network to stop “unauthorised payments” made using business cards?