Context:The Reserve Bank of India (RBI) has issued a directive to Visa and Mastercard, urging them to cease conducting commercial card transactions within the Business Payment Solution Providers (BPSP) sector.
Factors that lead to the cessation of commercial card transactions:
- There have been concerns raised regarding merchants who have incomplete KYC details, which has resulted in transactions being conducted without following proper invoicing or KYC protocols.
- Additionally, there have been instances of card-to-peer or card-to-business payments, such as bills or rent, which are not permissible according to regulations.
- This typically occurs when merchants are either unregistered or operating as illegitimate businesses.
- Furthermore, there have been reported violations of point of sale transactions, where payments are sent to a primary merchant and then distributed separately to other merchants.
- Such practices contradict the established rules that stipulate cards should only be utilised for point-of-sale transactions.
Business Payment Solution Provider (BPSP):
- The BPSP service helps companies that provide credit cards to pay money directly to the bank accounts of the stores or businesses they buy things from.
- BPSP is a newer way to make payments compared to RTGS and NEFT.
- It also lets people who owe money have up to 15-45 days to pay it back.
- Businesses can use BPSP to get paid with credit cards, even if they don’t have the right equipment.
- The RBI, which is a group that makes rules for banks, watches over and gives permission to BPSPs based on certain guidelines.
Advantages:
- The BPSP facility helps businesses as it gives them an easy way to invoice their clients as well as receive necessary payment.
- Thus, this enables them to make constant profits that enable them to generate more income as their businesses continue to run smoothly.
- It also makes simpler for them to accomplish other beneficial financial duties such as filing taxes and paying bills.`
- Treasury management helps in achieving two purposes, it ensures that a business will avail enough finances to cater for supplier payments on time and can also get discounts for early payments.
- In addition, it facilitates businesses to pay bills to other businesses that don’t accept credit cards, thus increasing again the possibilities coming from the business ecosystem.
Issues associated with BPSP:
- Both the case of vendors that don’t have cash-back and the issue of transparency of the processes in BPSPs remains unclear.
- Due to the blurry accounting ecosystem, it is hard for investors to get sure about where funds are correctly allocated and if they finally reach the intended beneficiaries.
- Discrimination of the fraud, misappropriation of money and laundering is at its risk due to the large volume of trade that is carried out by BSPs.
- And as well, the lack of legitimacy of traders and suppliers is a problem as BPSPs do not have access to the right data to prove their customer eligibility, hence making it difficult to trace the source of money.
Source: Business line
Practice question:
Q. ______ is an electronic payment system that enables customers of a bank or other financial institution to conduct a range of financial transactions through the financial institution’s website.
- Internet banking
- Interstate banking
- Single entry system
- Inter corporate banking
Ans: “a”
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