Context: 

The Reserve Bank of India (RBI) has asked Visa and Mastercard to stop commercial card transactions under the Business Payment Solution Providers (BPSP) business. 

Reasons for Stopping Commercial Card Transactions

• Incomplete KYC Details of Merchants: There are issues about transactions being conducted without appropriate invoicing or KYC protocols.
• Card-to-peer or card-to-business payments cases: There are instances of card-to-peer or card-to-business payments, such as bills or rent which are not allowed as it violates regulations. This occurs when merchants are either unregistered or not legitimate businesses.
• Violation of Point of Sale Transaction:  There are cases where payments are sent to one main merchant and then split up and sent separately to other merchants, which goes against the rules that say cards should only be used for point-of-sale transactions.

About Business Payment Solution Provider (BPSP)

• The BPSP service enables corporate credit card companies to make significant payments directly to vendors’ or merchants’ bank accounts.
• BPSP is a more recent payment method when compared to RTGS and NEFT.
• Features:  
  • It also offers debtors a credit period of 15-45 days.
  • Enables businesses to receive card payments even if they don’t have the necessary mechanism. 
• Regulatory Oversight: BPSPs are overseen and authorized by the RBI according to the PA-PG (Payment Aggregators and Payment Gateways) guidelines.

Benefits Of Business Payment Solution Provider (BPSP)

• High Liquidity: BPSP facility helps businesses to deliver businesses integrated e-Invoicing, ePayment and financing services which brings liquidity and drive cash flow for buyers and sellers. 
• Facilitation of Other Transactions: BPSP also helps business units to pay tax and bill’s payroll rent. 
• Improve Cash Flow: BPSP helps businesses to pay suppliers before the due date thus it is helpful in improving cash flow and leveraging early settlement discounts. 
• Enable B2B Payments: BPSP helps businesses to pay other suppliers (businesses) who don’t accept non- card at a reduced fee. In this way, it opens more trade ways for businesses. 

Drawbacks Of Business Payment Solution Provider (BPSP)

• Transparency and Accountability: The transparency of money moving through BPSPs, particularly for vendors who don’t accept cards, is unclear.
  • It makes it difficult to make sure that funds are used properly and to track where they ultimately end up.
• Fraudulence and Misuse:
  • BPSPs handle large volumes of commercial transactions. Therefore, there is a high probability of risks such as fraud, misuse, and money laundering. 
• Lack of legitimacy of vendors and suppliers:  BPSP has no proper information of Know Your Customer (KYC) compliance for merchant accounts and end users which creates problems in tracking the source of money. 

Difference Between Business Payment Solution Provider (BPSP) Route From Traditional RTGS and NEFT Transfers For Corporate Payments

News Source: Thehindubusinessline