RBI's credit line norms: Card-based fintech players may have to stop offers

In the light of the Reserve Bank of India (RBI) not permitting the loading of prepaid payment instruments (PPIs) from credit lines, card-based fintech players may have to stop their offers until the central bank clears the air on some issues.

Earlier this week, the RBI wrote to some non-bank PPI issuers, stating that the direction on this did not permit loading PPIs from credit lines. Such practice, if followed, should be stopped immediately. And, non-compliance may attract action under the Payment and Settlement Systems Act, 2007.

This has worried fintech lenders. Industry insiders are of the opinion that card-based fintech players who leveraged PPI partnerships to facilitate credit to the customers through cards will be the most affected.

Card-based fintech players have stopped offers or are in the process of doing so.

An industry expert said card-based EMI (equated monthly instalment) products would be affected because of the RBI’s notification. As such, “buy now pay later” (BNPL) products with direct merchant integration may not be affected because there is no underlying credit instrument.

Speaking to Business Standard, Sugandh Saxena, chief executive officer (CEO), Fintech Association for Consumer Empowerment (FACE), said: “In the past 18 months or so, some fintech lending companies have leveraged PPI partnerships to facilitate credit to customers through cards. Given the diversity of fintech lending, our understanding is the impact is limited to much smaller players.”

“There is huge customer demand for flexible credit products, including credit cards, and hence there is a promising opportunity for fintech lenders to meet the demand. After all, credit market penetration in India is still in low single digits,” she added.

According to industry sources, the two largest players in this segment -- Slice and Uni -- were taking on between 300,000 and 400,000 people per month. Some of the players expected to take a hit due to the RBI’s diktat are Slice, Uni Cards, Jupiter, EarlySalary, etc.

Attempts made to get in touch with Jupiter failed.

Rajan Bajaj, founder and CEO, Slice, had earlier told Business Standard: “We are committed to be on the right side of regulation in letter and spirit and are working with our partner bank on this.”

Akshay Mehrotra, co-founder and CEO, EarlySalary, said the order would not affect it much.

“Our customers to whom we were offering credit via PPI is very small compared to the customer base we have. Besides, we have stopped offering the PPI route as soon as RBI came up with the mandate,” he said.

He said some of its customers had the option of using the card to transfer their limit and shop with it.

Industry sources said though the regulator had asked to stop PPI lending, there was no clarity on how to treat the disbursements that were approved.

“There are several models of giving credit lines. The RBI and the industry will have to work together to resolve this,” said an industry source.

Ripple effect

• Card-based fintechs to face headwinds following RBI's diktat

• Industry players looking to get clarifications from RBI on certain issues 

• New-age players were onboarding 300-400k people per month 

• Some players have stopped their offers after RBI's notification 

• There is customer demand for flexible credit products, including credit cards 

• In the past 18 months, fintechs were leveraging PPIs to facilitate credit