Future of the Indian fintech industry after RBI's new guidelines

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The RBI's s recent notification in June 2022 states that prepaid payment instruments (PPI) cannot be loaded with credit lines. This rule will likely influence the country's Indian financial technology industry and fintech players. The latest notification supports the previous circular, the "Master Directions on Prepaid Payment Instruments (PPIs)," issued in August 2021, to provide authorization, regulation, and supervision of entities issuing and operating PPIs in the country. RBI plans to remove any regulatory trading that a wallet or non-banking PPI may have versus a bank. 

RBI disallowed non-banking wallets and prepaid cards from loading their credit lines onto these platforms and directed them to immediately stop such practices. These include mobile wallets, a travel card issuer or someone using non-bank-issued PPIs for other purposes. After this notification, non-banking financial companies (NBFCs) cannot have accounts that allow users to pay; instead, users can take money into the bank account and pay from the bank. Additionally, mobile wallets are not allowed to issue a credit to customers. 

The new RBI guidelines will impact wallets and prepaid cards linked to credit lines that allow Buy Now Pay Later (BNPL), such as LazyPay, Slice, Uni, MobiKwik, EarlySalary, Jupiter, PostPe, Fi, and Ola Postpaid. These wallets are mostly partnered with banks, NBFCs or sometimes both, for the credit line. For instance,

• In the process of availing of an instant loan facility through MobiKwik, users need to download the app and complete minimum wallet KYC to get an instant approval for a loan, and the credit will be routed to the user's MobiKwik online wallet. Hence, the user is loading his non-bank PPI (MobiKwik wallet) through a credit line offered by MobiKwik in collaboration with banks or NBFCs. MobiKwik has partnered with one bank named "IDFC First Limited" and five NBFCs, including Fullerton India Credit Company, Western Capital Advisors, Incred Financial Services, Growth Source Financial Technologies, and Home Credit India Finance. Moreover, it is not clear whether the credit line is routed to the user's wallet through a bank or NBFC with a bank partner. 
• Similarly, LazyPay has partnered with banks such as SMB Bank India and Visa and NBFC PayU Finance. If the user wants to apply for an instant loan facility, it is ambiguous whether the credit line is directed to the user's wallet through the bank or NBFC. 
• Slice has partnered with four NBFCs, such as DMI Finance Private Limited, Quadrillion Finance Private Limited, Northern Arc Capital Limited, and Vivriti Capital Private Limited. Hence, the credit is facilitated to the users through one of these NBFCs.
• Paytm Postpaid has partnered with one NBFC, Clix Capital, through which the credit is facilitated to the users.

The Indian BNPL industry is expected to reach around US$ 100 billion by 2023. This represents that the BNPL sector in India is growing at a very fast pace, with more and more companies venturing into this market. As BNPL and PPIs are growing significantly in the country, it is mandatory to keep track of transactions and regulate the credit capacity of PPIs. RBI has announced the updated guidelines to benefit the end user from getting the desired loans from only partnered banks. 

Various fintech startups such as Jupiter, EarlySalary, Paytm Postpaid, and OlaMoney have suspended their credit-linked card services after the RBI's ban on NBFCs loading credit to e-wallets.

• Jupiter Edge, a unit of the neobanking platform of Jupiter and EarlySalary, has informed its customers on social media about pausing its card services as part of RBI's new guidelines.
• Paytm Postpaid, a BNPL arm of Paytm, has withdrawn its credit services on third-party apps such as Zomato and Swiggy following the RBI's announcement.
• OlaMoney Postpaid has informed its users that it is disabling the option of using postpaid services with the user's balance on the Ola Money card or wallet.

However, fintech companies are planning to seek an extension of at least six months to comply with the new RBI guidelines. As per the meeting held by the Digital Lenders Association of India (DLAI), the fintech industry association plans to send a petition to the government and RBI, seeking a logical explanation for the circular sent previously.

To know more and gain a deeper understanding of the BNPL market in India, click here.