RBI Clamps Down on P2P Credit Card Transactions

The Reserve Bank of India (RBI) is reportedly clamping down on peer-to-peer (P2P) credit card transactions made via third-party service providers, following its prohibition on visas from conducting specific commercial business-to-business (B2B) credit card transactions. This comes after the RBI has found instances of retail customers using credit cards to pay rent and tuition fees through third party apps, such as CRED, OneCard and NoBroker.

What are P2P credit card transactions?

P2P credit card transactions are payments made by customers using their credit cards to a merchant account operated by a third-party service provider, usually a fintech company. The service provider then transfers the money to the bank account of the recipient, such as a landlord or a school, in exchange for a commission. These transactions are different from person-to-merchant (P2M) transactions, where the customer pays directly to the merchant using their credit card.

Why is RBI cracking down on them?

According to RBI sources, P2P credit card transactions are violating the regulatory norms for credit cards, which are defined as physical or virtual payment instruments issued with a pre-approved revolving credit limit, that can be used to purchase goods and services or draw cash advances. By routing funds through an escrow account operated by a third party, these transactions are bypassing the regulations and will not be allowed.

Moreover, these transactions are also beyond the scope of the current licensing of these service providers. For instance, CRED only has a TPAP (Third Party Application Provider) licence from NPCI and has applied for a PA (Payment Aggregator) licence from RBI, whereas OneCard is a co-branded card issuer. The RBI has also equated these payments to Business Payments Solution Provider (BPSP)-type retail transactions, which it had barred Visa from offering last month.

What are the implications for customers and service providers?

The RBI’s crackdown on P2P credit card transactions will have implications for both customers and service providers. Customers who use these services to pay rent and tuition fees will have to find alternative modes of payment, such as debit cards, UPI or NEFT. They will also lose out on the benefits of using credit cards, such as reward points, cashback and interest-free period.

Service providers who offer these services will have to stop them or face regulatory action from the RBI. They will also lose out on the commissions they charge for these transactions, which range from 1.5% to 3% in addition to GST. Some of them have already limited the scope of these services only to registered housing societies and commercial agreements that have a merchant bank account, such as Amazon Pay and Paytm.

Recent Blog : IIFCL Proposes Infrastructure Classification for Space Industry