The Reserve Bank of India (RBI) this week 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 a number of 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 on a temporary basis.
Here are the 10 important points to explain RBI's order and its 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, 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 licences 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 purchase patterns of their users on a long term.
- The restriction is likely to impact startups including Slice, Uni, and PayU's LazyPay that are offering credit lines to their users. Similarly, various companies using the buy now, pay later (BNPL) model are also expected to be affected by the RBI order. This means that there could be restrictions in place for Paytm Postpaid, Ola Postpaid, and Amazon Pay Later, among others.
- However, the official order does not include the name of any impacted entities.
- Commercial banks are not impacted 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 amongst the members of FACE.
- BharatPe Co-Founder Ashneer Grover took to Twitter to slam the central bank for the update. "Not allowing loading of pre-paid instruments through credit is aimed at protecting bank's lazy credit card business from fintech's potent BNPL business," he said, adding that, "Market is market and regulation will eventually come around to what market needs."
- Fintech startups are currently assessing the situation and not willing to publicly speak 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 obviously, regulatory risk in terms of sentiment, but it's really hard to give numbers in terms of what would be 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 are now barred by the RBI. It also also unclear whether they will be continue to use such cards or make transactions on credit from them.
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Further reading: Reserve Bank of India
, prepaid payment instrument
, buy now pay later
, Paytm Postpaid
, Amazon Pay
, Ola Postpaid
, prepaid cards