Mudra Compass

Following its decision to restrict Visa from engaging in specific commercial business-to-business (B2B) credit card transactions, the Reserve Bank of India is now observed to be taking action against peer-to-peer (P2P) credit card payments facilitated through third-party service providers.

This action follows the central bank’s discovery of instances where retail customers utilize credit cards to settle rent and tuition fees via third-party applications. Typically operated by fintech firms, these third-party platforms enable customers to make credit card payments to authorized merchant accounts. Subsequently, they promptly transfer the funds to the recipient’s bank account, such as a landlord for rent payments, in exchange for a commission.

“A senior official stated that credit card transactions are intended solely for transactions between merchants and customers (P2M). If funds are channeled through an escrow account managed by a third party, it contravenes regulations and will be prohibited.”

Regulatory Norms

In line with regulatory norms, a credit card is defined as a payment instrument, either physical or virtual, issued with a pre-approved revolving credit limit. It can be utilized for purchasing goods and services or obtaining cash advances.

“Any funds routed through a third party in an unauthorized manner are under scrutiny,” stated another official, noting that rent payment is one of the significant segments affected by this issue.

Currently, fintech companies like CRED, OneCard, and NoBroker offer this service. Previously, Amazon Pay and Paytm allowed rent payments via credit cards, but they have now restricted this to registered housing societies and commercial agreements with merchant bank accounts.

Commissions and Compliance

These service providers levy a commission ranging from 1.5% to 3% on such transactions, along with applicable GST. To illustrate, for a rent payment of ₹25,000 made through a credit card, the additional charges or fees would amount to ₹400-600. Similarly, for a payment of ₹35,000, the charges would range between ₹550-850.

According to a source, these transactions not only contravene the credit card framework but also fall outside the scope of the current licensing of these entities. Such payments are likened to retail transactions characteristic of Business Payments Solution Providers (BPSP). CRED holds solely a TPAP (Third Party Application Provider) license from NPCI and has applied for a PA (Payment Aggregator) license from RBI. On the other hand, OneCard functions as a co-branded card issuer.

The central bank recently prevented Visa from offering its BPSP service, which facilitates businesses to use intermediaries, often fintechs, for card payments to entities not equipped to accept card transactions. In this setup, the intermediary accepts card payments from companies for their commercial transactions and then transfers the funds to non-card accepting recipients via IMPS/RTGS/NEFT.

What is P2P Lending Platform?

A peer-to-peer lending platform operates similarly to crowdfunding, aggregating funds from individuals, Hindu Undivided Families (HUFs), and companies. When a borrower requests a loan, lenders can participate in an auction to fulfill the borrower’s loan needs. The borrower has the liberty to accept or decline the offers made by lenders.

According to RBI regulations, individuals, Hindu Undivided Families (HUFs), firms, societies, or companies are permitted to engage in a P2P lending platform. Under the updated guidelines, the RBI has increased the investment cap for individuals by fivefold to Rs 50 lakhs.

Earlier Guidelines in 2017

According to the RBI’s Master Directions for NBFC Peer-to-Peer Lending Platform issued in 2017, the following guidelines were outlined:

• Only Non-Banking Financial Companies (NBFCs) are permitted to register as P2P lenders, subject to explicit approval from the RBI.
• All existing and non-NBFC P2P entities must register themselves with the Department of Non-Banking Regulation, Mumbai.
• P2P lenders are required to obtain a certificate of registration from the RBI.
• P2P platforms must maintain a minimum net-owned fund of Rs 20 million, along with meeting other stipulated conditions set by the RBI.
• The leverage ratio for P2P lenders must not exceed 2.