RBI Tightens Regulations on P2P Credit Card Transactions

The Reserve Bank of India (RBI) has recently taken strict measures to curb the misuse of credit cards for peer-to-peer (P2P) payments through third-party service providers. This comes after the central bank found instances of customers using credit cards to pay rent and tuition fees via fintech apps that bypass the regulatory norms. The RBI has also barred Visa from offering its business payment solution provider (BPSP) facility that allows businesses to make card payments through intermediaries to entities that do not accept card payments. The RBI has stated that credit card transactions are only meant to be between merchants and customers (P2M) and any funds that are routed through a third party in an unauthorised way are attracting scrutiny.

What are P2P credit card transactions?

P2P credit card transactions are payments made from one individual to another using a credit card as the source of funds. These transactions are usually facilitated by third-party service providers, such as fintech apps, that charge a commission for their service. For example, a customer can use a credit card to pay rent to their landlord through an app that transfers the money to the landlord’s bank account instantly. The app then charges a fee of 1.5-3 per cent on the transaction amount.

Why is RBI cracking down on P2P credit card transactions?

The RBI has expressed concerns over the regulatory compliance and consumer protection issues arising from P2P credit card transactions. According to the RBI, these transactions violate the definition and framework of credit cards, which are meant to be used for purchasing goods and services or drawing cash advances. The RBI has also pointed out that these transactions are beyond the scope of the current licensing of the third-party service providers, who are not authorised to operate escrow accounts or act as intermediaries for card payments. The RBI has also highlighted the risks of money laundering, tax evasion and fraud associated with P2P credit card transactions.

What are the implications of RBI’s actions?

The RBI’s actions have implications for both customers and service providers involved in P2P credit card transactions. Customers who use credit cards for P2P payments may face higher charges, lower rewards and reduced credit limits from their card issuers. They may also face legal action if they are found to be violating the terms and conditions of their card agreements or evading taxes. Service providers who facilitate P2P credit card transactions may face regulatory action, penalties and cancellation of their licenses from the RBI. They may also lose their customer base and revenue streams as customers switch to alternative modes of payment.

What are the alternatives to P2P credit card transactions?

Customers who wish to make P2P payments can use other digital modes of payment that are compliant with the RBI’s regulations and guidelines. These include:

  • UPI: Unified Payments Interface (UPI) is a fast, secure and convenient way of making P2P payments using mobile phones. UPI allows customers to link multiple bank accounts to a single app and transfer money using a virtual payment address (VPA) or a QR code. UPI does not charge any fees for P2P transactions and offers various features such as offline payments, conversational payments, feature phone payments, etc.
  • IMPS: Immediate Payment Service (IMPS) is an instant inter-bank electronic fund transfer service that operates 24×7. IMPS allows customers to transfer money using their mobile number and MMID (Mobile Money Identifier) or their account number and IFSC code. IMPS charges a nominal fee for P2P transactions and has a limit of Rs 2 lakh per transaction.
  • NEFT: National Electronic Funds Transfer (NEFT) is a nation-wide payment system that facilitates one-to-one fund transfer between bank accounts. NEFT operates in batches at fixed intervals throughout the day and charges a nominal fee for P2P transactions. NEFT has no limit on the amount or number of transactions.
  • RTGS: Real Time Gross Settlement (RTGS) is a system where fund transfers between bank accounts are processed on a real-time basis without any waiting period. RTGS is mainly used for high-value transactions above Rs 2 lakh and charges a higher fee than NEFT for P2P transactions.

What is the data on P2P credit card transactions in India?

According to a report by Worldline India, combined digital payments volume and value through cards, mobile wallets, prepaid cards and UPI P2M transactions stood at 28.43 billion and Rs 32 trillion, respectively, in 2021, with UPI emerging as the most preferred payment mode among consumers. However, the report did not provide any data on P2P credit card transactions specifically. According to another report by RBI, the number of debit and credit cards issued in India crossed 1 billion in 2021, with debit cards accounting for 90 per cent of the total. The report also stated that the number of PoS terminals deployed in India increased to 5.9 million in 2021, up from 5.1 million in 2020. However, the report did not mention the volume or value of debit and credit card payments in India. According to a forecast by Statista, the number of P2P payments users in India is expected to reach 448.8 million by 2023, up from 328.7 million in 2019. However, the forecast did not specify the mode of payment used for P2P transactions.

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