Central Bank Tightens Oversight Amid Concerns Over Regulatory Compliance and Transparency
Days after directing global payment giants Visa and Mastercard to suspend card-based commercial transactions, the Reserve Bank of India (RBI) has intensified scrutiny on peer-to-peer (P2P) credit card payments facilitated by third-party service providers. This heightened vigilance comes in response to the central bank’s discovery of retail customers using credit cards to pay rent and tuition fees through third-party apps.
These third-party players, often fintech startups, allow customers to make credit card payments to authorized merchant accounts. The funds are then promptly transferred to the recipient’s bank account, such as a landlord or educational institution, in exchange for a commission.
According to a report by The Hindu Business Line, “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 bypasses the regulations and will not be allowed.”
This regulatory clampdown affects several fintech startups that provide such services, including CRED, OneCard, and NoBroker. These startups typically impose fees ranging from 1.5% to 3% on transactions, along with Goods and Services Tax (GST). For instance, a credit card payment of INR 25,000 for rent could incur additional charges of INR 400-600.
The RBI’s action follows its recent decision to bar Visa from offering its BPSP facility, through which businesses could make card payments via intermediaries to entities that do not otherwise accept card payments. Similarly, concerns over regulatory compliance and transparency have prompted the central bank to scrutinize Paytm Payments Bank, leading to restrictions on deposit and credit transactions.
This intensified oversight poses significant challenges for fintech startups operating in the credit card payment space. It may require them to reassess their business models, ensure compliance with regulatory requirements, and seek alternative revenue streams. Additionally, the regulatory scrutiny underscores the importance of transparency and adherence to regulatory guidelines in the fintech industry.
As the RBI continues to tighten its grip on P2P credit card payments, startups in the fintech ecosystem must navigate regulatory complexities while striving to maintain customer trust and confidence in their services.
