This week, the Reserve Bank of India (RBI) issued a notice to all non-bank prepaid payment instrument (PPI) issuers in the country to restrict them from loading instruments, including prepaid cards, using credit lines. The move is believed to have impacted several fintech firms, including Uni, Slice, and KreditBee, that issue cards along with credit lines to substitute traditional credit cards. Some of the potentially affected companies even halted transactions on their platforms temporarily.
Here are the ten important points to explain RBI’s order and impact. The RBI on Monday issued a notice to all non-bank PPI issuers to explicitly restrict them from loading their prepaid instruments, including cards using credit lines. “Such practice, if followed, should be stopped immediately,” the central bank said in a one-page notice sent to non-bank PPI issuers, the contents of which were reviewed by Gadgets 360. It also stated that “any non-compliance” to the order might attract “penal action under provisions contained in the Payment and Settlement Systems Act, 2007.” Several fintech firms in the country have used their PPI licenses to issue cards and mobile wallets for the last several months.
Some of them have also equipped their issued instruments with credit lines to retain their user base and understand the purchase patterns of their users in the long term. The restriction will likely impact startups, including Slice, Uni, and PayU’s LazyPay, that offer their users credit lines. Similarly, various companies using the buy now, pay later (BNPL) model are also expected to be affected by the RBI order. This means there could be restrictions in place for Paytm Postpaid, Ola Postpaid, and Amazon Pay Later, among others. However, the official order does not include any impacted entities’ names. Commercial banks are not affected by the move as the order was specifically addressed to non-bank PPI issuers in the country.
As a result of the order, startups, including Jupiter and EarlySalary informed their users that they had temporarily disabled transactions on their platforms. KreditBee, a non-banking finance company (NBFC), has also stopped operating transactions since the release of the order. “Unless there’s a complete clarity, we don’t want to be on the wrong side of the regulation,” Sugandh Saxena, CEO of industry body Fintech Association for Consumer Empowerment (FACE), told Gadgets 360. EarlySalary and KreditBee are among the members of FACE. BharatPe Co-Founder Ashneer Grover took to Twitter to slam the central bank for the update.
“Not allowing loading of prepaid instruments through credit is aimed at protecting bank’s lazy credit card business from fintech’s potent BNPL business,” he said, adding, “Market is market and regulation will eventually come around to what market needs.” Fintech startups are currently assessing the situation and are not willing to speak publicly on the matter until getting clear instructions from the regulatory authorities, people familiar with the matter told Gadgets 360.
“I am sure there would be a constant business loss around it and,, regulatory risk in terms of sentiment, but it’s really hard to give numbers in terms of the exact loss,” Saxena of FACE said. The restriction may eventually push individuals in the country to get traditional credit cards for financing their purchases instead of relying on BNPL platforms. But there is no clarity on what exactly will happen to consumers who already own cards from firms that the RBI now bars. It also also unclear whether they will be continue to use such cards or make transactions on credit from them.
Follow Gadgets 360 on Twitter, Facebook, and Google News for the latest tech news and reviews. For the latest videos on gadgets and tech, subscribe to our YouTube channel. Further reading: Reserve Bank of India, prepaid payment instrument, buy now pay later, BNPL, Uni, Slice, KreditBee, Jupiter, Paytm Postpaid, Amazon Pay, Ola Postpaid, LazyPay, PPI, prepaid cards Apple AirPods Beta Firmware Tips Upcoming Support for Higher Quality LC3 Bluetooth Codec Realme 7 Pro Receiving June 2022 Update, Realme UI 3.0 Open Beta Released for Narzo 30 Pro 5G