RBI cracking down on P2P credit card transactions

After barring Visa from undertaking certain commercial business-to-business (B2B) credit card transactions, the Reserve Bank of India is now seen cracking down on peer-to-peer (P2P) credit card payments made via third-party service providers, sources told businessline.

This comes after the central bank has found instances of retail customers using credit cards to pay rent and tuition fees through third party apps.

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These third-party players, usually fintechs, allow customers to make a credit card payment to their authorised merchant account. They then instantaneously transfer the money to the bank account of the recipient (for instance a landlord in case of rent payments) in exchange for a commission.

“Credit card transactions are only meant to be between merchants and customers (P2M). If funds are being routed through an escrow account operated by a third party, it is bypassing the regulations and will not be allowed,” a senior official said.

Regulatory norms

As per regulatory norms, a credit card is defined as a physical or virtual payment instrument issued with a pre-approved revolving credit limit, that can be used to purchase goods and services or draw cash advances.

• Also read: RBI allows customers to choose card networks at issuance

“Funds that are being routed through a third party, in any unauthorised way, are attracting scrutiny,” another official said, adding that rent payment is one of the biggest segments under this.

Fintechs such as CRED, OneCard and NoBroker currently provide this service. Amazon Pay and Paytm used to allow rent payments via credit cards earlier but have now limited the scope only to registered housing societies and commercial agreements that have a merchant bank account.

Commissions

These entities charge a commission of 1.5-3 per cent on such transactions in addition to GST. To understand, a rent payment of ₹25,000 via a credit card would attract additional charges or fees of ₹400-600 whereas that for a ₹35,000 payment would be ₹550-850.

Such transactions violate not just the credit card framework but is also beyond the scope of the current licensing of these entities, a source said, equating such payments to Business Payments Solution Provider (BPSP)-type retail transactions. CRED only has a TPAP (Third Party Application Provider) licence from NPCI and has applied for a PA licence from RBI, whereas OneCard is a co-branded card issuer.

The central bank, had last month, barred Visa from offering its BPSP facility that allows businesses to make card payments through intermediaries (usually fintechs), to entities that do not otherwise accept card payments.

“Under this arrangement, the intermediary accepts card payments from corporates for their commercial payments and then remits the funds via IMPS/RTGS/NEFT to non-card accepting recipients,” RBI had then said.

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