Big Fraud: ICICI Bank seeks at least ₹100 crore recovery from fintech firms

Private-sector lender ICICI Bank has sought recoveries of at least ₹100 crore from fintech firms over the alleged merchant misclassification of their business, according to multiple sources. 

This is being done through disputes lodged with global card network Visa. The action is one of the first in the industry, marking a growing discomfort among banks over alleged merchant category misclassification by fintech companies, eroding their interchange income over the past one year. 

“Issuing banks lost out on the interchange income because the merchant tags were misclassified into lower interchange categories. ICICI Bank raised a dispute Visa and they (Visa) have asked companies to revert ₹100 crore to the issuing bank,” a source said. The Reserve Bank of India (RBI) has been scrutinising payment fintechs over this matter since at least the year 2025. Business Standard first reported this last year.

Sources said the banking regulator had stepped up the supervision and scrutiny of fintech payment aggregators over such compliance-related matters during routine audits. An email to ICICI Bank and Visa on the matter did not get a response till the time of going to press. Misclassification involves placing retail merchants in lower-interchange categories such as utilities, enabling fintech firms to offer merchants lower payment-processing rates while scooping out higher margins.

However, issuing banks lose out on their share of interchange income. A second source in the industry said the practice was not new but described it as “unethical”, stating that compliance lapses by a handful of new-age payment aggregators were damaging the credibility of the digital-payment sector and weighing on investor confidence. 

Sources indicated other banks could soon follow suit, potentially widening the liability burden on fintech companies.

The regulator too has intensified its oversight of such classification practices. 

These liabilities come at a time when fintech firms are under pressure to justify revenues and valuations even as the dominant payments rail, Unified Payments Interface (UPI), continues to operate without a merchant discount rate (MDR) or transaction fees. 

For instance, a source cited the case of an early-stage Mumbai-based payment aggregator that is now facing liabilities of a similar scale as part of the ongoing dispute. It has revenues of ₹4 crore.