Uni Cards suspends services days after RBI tightens digital lending norms

Uni Cards on Friday said it was suspending card services on its products -- Uni Pay 1/3rd and Uni Pay 1/2 -- as a consequence of the digital lending guidelines, recently brought in by the Reserve Bank of India (RBI). These guidelines tighten norms around digital lending methods.

“This process will begin in phases for our customers starting today and will be concluded by Monday," the company stated.

Uni Cards had paused its customer onboarding when the central bank issued a communication in June saying prepaid instruments (PPIs) cannot be loaded from credit lines.

In its digital lending guidelines, the RBI has mandated that all loan disbursements and repayments are required to be executed only between the bank account of the borrower and the regulated entity, without any pass-through/ pool account of the lending service provider (LSP) or a third party.

“We are proactively suspending our card services in phases by Monday. Bearing the fact in mind that the Uni Card is used for urgent needs like fee payments, medical bills and emergencies, we have ensured that each of our customers will have access to their credit line through Uni Cash," said Nitin Gupta, founder & CEO, Uni Cards.

Uni Cash is a product built to transfer a credit line to a customer's bank account instantly. The company said it is extending a zero-charge partial limit on Uni Cash until September 21, given that a large number of customers depend on Uni Card for their everyday needs.

“With a free partial limit enabled, our customers will not face any disruption while using their funds. We are building something really exciting. Like always, it’s first-of-a-kind and never been done before”, Gupta said.

Recently, State Bank of Mauritius (SBM) India has asked its fintech partners to freeze onboarding new customers for its co-branded credit prepaid card product in light of new RBI digital lending guidelines.

Over the past few years, fintech players have launched certain products around credit that are driven by non-banking financial companies (NBFCs) and delivered through PPIs. The central bank was miffed at new-age players extending credit lines through cards as a substitute to credit cards. After the RBI’s communication on PPIs in June this year, brokerages pointed out that card-based fintech players would be severely impacted because they had built a business model around giving credit lines on prepaid cards.

Some of the new-generation players were adding close to 200,000-300,000 cards using PPI licences, and loading the wallets of consumers using credit lines from NBFCs, banks, and other sources. However, the main purpose of a PPI licence is to act as a payment instrument and not as a credit instrument, and these new-age players were using this as a channel to load credit.

After the RBI's June communication, there was confusion among market players over its possible impact. Through the recent digital lending guidelines, the central bank has clarified that loan disbursements can be made only into a borrower’s bank account, not into a PPI in any case. In the working group recommendations, there was a line saying a loan can be disbursed through fully KYC PPIs, but the final guidelines have made it amply clear what is permissible.

Digital Lending Rules & Impact

• Norms mandated that all loan disbursements and repayments are required to be executed only between the bank account of the borrower and the regulated entity
• This should happen without any pass-through/pool account of the lending service provider or a third party
• But new-age players are extending credit lines through cards as a substitute to credit cards
• Uni Cards, too, has built products to transfer a credit line to customer's bank account
• Company says it’s extending a zero-charge partial limit on Uni Cash until September 21 as a large number of customers depend on Uni Card for everyday needs