The Reserve Bank of India (RBI) has issued a directive to credit card issuers, urging them to establish a robust system to determine the end use of funds in an effort to monitor fintech entities attempting to stretch regulatory boundaries. The move comes as part of the RBI’s comprehensive guidelines to enhance regulations in response to the growing presence of fintechs and aggregators in the financial landscape.
Traditionally, banks directly remit payments to merchants, but aggregators have expanded the landscape by collecting funds through card transactions and facilitating payments to entities that may not otherwise accept card-based transactions. The lack of transparency regarding the end use of card payments played a pivotal role in the RBI’s recent decision to prohibit fintechs from issuing business credit cards.
The revised guidelines also necessitate that banks permit borrowers to choose the billing cycle for their credit cards. Moreover, banks are now barred from sharing card transaction data with outsourcing partners unless absolutely essential for the partner to fulfill its functions. In such cases, explicit consent from the cardholder is mandatory, with a stipulation that the storage and ownership of card data must remain with the card issuer.
The updated provisions introduce flexibility for banks and registered NBFCs to become co-branding partners without prior approval from the RBI. The reporting period for default status to credit information companies has been condensed from ‘within 30 days’ to ‘within 30 days from the date of settlements.’ The revised norms stress the importance of transparently adhering to procedures, especially in cases of unresolved disputes.
Additionally, the RBI reinforces instructions regarding the issuance of alternative form factors instead of traditional plastic debit/credit cards. The updated mandate includes a provision for card issuers to offer mechanisms for disabling or blocking these alternative form factors, aligning with the RBI’s directives to enhance security and control in the digital payment ecosystem.
