RBI cracking down on P2P credit card transactions

The Reserve Bank of India (RBI) has intensified its oversight on peer-to-peer (P2P) credit card payments facilitated by third-party service providers. This follows the discovery of retail customers utilizing credit cards for rent and tuition fee payments through third-party apps, prompting regulatory action.

Regulatory Norms and Scrutiny:

• RBI defines credit cards as payment instruments with pre-approved credit limits for purchasing goods/services or withdrawing cash.
• Funds routed through third-party escrow accounts bypass regulations, attracting regulatory scrutiny.
• Rent payments are a significant segment under scrutiny for such transactions.

Involvement of Fintechs and Commissions:

• Fintech companies like CRED, OneCard, and NoBroker offer credit card payment services, charging commissions ranging from 1.5% to 3% in addition to GST.
• Transactions via third-party intermediaries are considered outside the scope of current licensing, akin to Business Payments Solution Provider (BPSP) transactions.

Compliance and Licensing Issues:

• Some fintechs operate with Third Party Application Provider (TPAP) licenses from NPCI and seek Payment Aggregator (PA) licenses from RBI.
• The central bank recently prohibited Visa from offering its BPSP facility to entities not accepting card payments directly, signaling a strict stance on compliance.